424B3 1 d712283d424b3.htm 424B3 424B3
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-195818

 

LOGO

245 First Street, Third Floor

Cambridge, Massachusetts 02142

June 6, 2014

Dear Stockholder:

You are cordially invited to attend the 2014 Annual Meeting of Stockholders (the “Annual Meeting”) of Zalicus Inc. (“Zalicus” or the “Company”) to be held on July 15, 2014, at 9:00 a.m. local time, at Goodwin Procter LLP, Exchange Place, 53 State Street, Boston, Massachusetts 02109. This meeting is being held to consider various matters in connection with the Board of Directors of the Company’s approval of the issuance of shares of Zalicus common stock (the “Share Issuance”) pursuant to the Agreement and Plan of Merger and Reorganization, dated as of April 15, 2014, by and among Zalicus, EPIRUS Biopharmaceuticals, Inc. (“Epirus”) and BRunning, Inc., a wholly-owned subsidiary of Zalicus, as amended by Amendment No. 1 to the Agreement and Plan of Merger and Reorganization (the “Amendment”) (as amended, the “Merger Agreement”), dated as of May 7, 2014, by and between Zalicus and Epirus. Pursuant to the Merger Agreement, BRunning, Inc. will be merged with and into Epirus and the equityholders of Epirus will be issued between 81% to 86% of the outstanding shares of common stock (“Common Stock”) of Zalicus.

At the Annual Meeting, you will be asked to consider and vote upon, among other proposals, the Share Issuance, an amendment to Zalicus’ sixth amended and restated certificate of incorporation, as amended, to effect a reverse stock split which may be necessary to effect the Share Issuance and the closing of the merger, an amendment to Zalicus’ sixth amended and restated certificate of incorporation, as amended, to increase the number of authorized shares of Common Stock and to change the name of Zalicus (together, the “Charter Amendments”), and an amendment to the Amended and Restated 2004 Incentive Plan to increase the total number of shares of Common Stock available for issuance thereunder (the “Plan Amendment”).

After careful consideration, our Board of Directors unanimously approved the Merger Agreement and determined the Share Issuance, the Charter Amendments, the Plan Amendment and the other transactions contemplated by the Merger Agreement are advisable to and in the best interests of Zalicus and our stockholders. Our Board of Directors unanimously recommends that you vote “FOR” the Share Issuance, the Charter Amendments, the Plan Amendment and the other matters being considered at the Annual Meeting.

Your vote is important, regardless of the number of shares of Zalicus Common Stock you own. We cannot consummate the merger unless the Share Issuance is adopted by the affirmative vote of a majority of the votes properly cast at the Annual Meeting, and the Charter Amendments are adopted by the affirmative vote of a majority of the outstanding shares of Zalicus Common Stock entitled to vote at the Annual Meeting. If you abstain from voting, fail to cast your vote, in person or by proxy, or fail to give voting instructions to your brokerage firm, bank, trust or other nominee, it will have the same effect as a vote against these proposals.

The attached joint proxy statement/prospectus provides you with detailed information about the Annual Meeting, the Merger Agreement, the Share Issuance, the Charter Amendments and the Plan Amendment. A copy of the Merger Agreement is attached as Appendix A and a copy of the Amendment is attached as Appendix B to the proxy statement. We encourage you to read the joint proxy statement/prospectus and the Merger Agreement carefully and in their entirety. You may also obtain more information about Zalicus from documents we have filed with the Securities and Exchange Commission.

On behalf of your Board of Directors, thank you for your continued support and interest in Zalicus Inc. I look forward to seeing you at the meeting on July 15, 2014.

 

Very truly yours,

LOGO

Mark H.N. Corrigan, M.D.
President and Chief Executive Officer
Zalicus Inc.


Table of Contents

Your vote is very important regardless of the number of shares you own. At your earliest convenience, please vote by telephone or via the Internet according to the instructions provided on the enclosed proxy card or complete, sign, date and return the enclosed proxy card, which requires no postage if mailed in the United States.

Stockholders with questions or requiring assistance voting their shares may contact MacKenzie Partners, Inc., our proxy solicitor:

 

LOGO

105 Madison Avenue

New York, NY 10016

proxy@mackenziepartners.com

(212) 929-5500 (Call Collect)

or

TOLL FREE 1-800-322-2885

FOR A DISCUSSION OF SIGNIFICANT MATTERS THAT SHOULD BE CONSIDERED BEFORE VOTING AT THE ANNUAL MEETING, SEE “RISK FACTORS” BEGINNING ON PAGE 25.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORS HAVE APPROVED OR DISAPPROVED THE SHARES OF ZALICUS COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED WHETHER THIS JOINT PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

This joint proxy statement/prospectus is dated June 6, 2014 and is first being mailed to stockholders on or about June 6, 2014.


Table of Contents

EPIRUS BIOPHARMACEUTICALS, INC.

699 Boylston Street, 11th Floor

Boston, MA 02116

June 6, 2014

Dear Stockholder:

You are cordially invited to attend the Special Meeting of Stockholders (the “Stockholder Meeting”) of EPIRUS Biopharmaceuticals, Inc. (“Epirus” or the “Company”) to be held on July 15, 2014, at 9:00 a.m. local time, at 699 Boylston Street, 11th Floor, Boston, MA 02116. This meeting is being held to consider various matters in connection with the Board of Directors of the Company’s approval of the Agreement and Plan of Merger and Reorganization (as amended, the “Merger Agreement”) by and among Epirus, Zalicus Inc. (“Zalicus”), and BRunning, Inc., a wholly-owned subsidiary of Zalicus, as amended by Amendment No. 1 to the Agreement and Plan of Merger and Reorganization (the “Amendment”), dated as of May 7, 2014, by and between Epirus and Zalicus. Pursuant to the Merger Agreement, BRunning, Inc. will be merged with and into Epirus and the equityholders of Epirus will be issued between 81% to 86% of the outstanding shares of common stock (“Common Stock”) of Zalicus.

At the Stockholder Meeting, you will be asked to consider and vote upon the approval of the Merger Agreement.

After careful consideration, our Board of Directors unanimously approved the Merger Agreement and determined that the other transactions contemplated by the Merger Agreement are advisable to and in the best interests of Epirus and its stockholders. Our Board of Directors unanimously recommends that you vote “FOR” the Merger Agreement and the other matters being considered at the Stockholders Meeting.

Your vote is important, regardless of the number of shares of Epirus stock you own. We cannot consummate the merger unless the Merger Agreement is adopted by the affirmative vote of (i) the holders of a majority of Epirus common stock and Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (ii) the holders of at least seventy percent (70%) of the outstanding shares of Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (iii) the holders of at least seventy-five percent (75%) of the outstanding shares of Epirus Series B preferred stock and (iv) the holders of at least a majority of the outstanding shares of Epirus Series A preferred stock. If you abstain from voting or fail to cast your vote, in person or by proxy, it will have the same effect as a vote against these proposals.

The attached joint proxy statement/prospectus provides you with detailed information about the Stockholder Meeting and the Merger Agreement. A copy of the Merger Agreement is attached as Appendix A and a copy of the Amendment is attached as Appendix B to the proxy statement. We encourage you to read the joint proxy statement/prospectus, the Merger Agreement, and the Amendment carefully and in their entirety. You may also obtain more information about Zalicus from documents Zalicus has filed with the Securities and Exchange Commission.

On behalf of your Board of Directors, thank you for your continued support and interest in EPIRUS Biopharmaceuticals, Inc. I look forward to seeing you at the meeting on July 15, 2014.

Very truly yours,

 

LOGO

Amit Munshi

President and Chief Executive Officer

EPIRUS Biopharmaceuticals, Inc.


Table of Contents

ZALICUS INC.

245 First Street, Third Floor

Cambridge, Massachusetts 02142

NOTICE OF 2014 ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders of Zalicus Inc.:

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders of Zalicus Inc., or Zalicus, will be held on July 15, 2014, beginning at 9:00 a.m., local time, at Goodwin Procter LLP, Exchange Place, 53 State Street, Boston, Massachusetts 02109 for the following purposes:

 

  1. To approve the issuance of shares of Zalicus common stock in the merger as contemplated by the Agreement and Plan of Merger and Reorganization, dated as of April 15, 2014, by and among Zalicus, EPIRUS Biopharmaceuticals, Inc., or Epirus, and BRunning, Inc., a wholly-owned subsidiary of Zalicus, as amended by Amendment No. 1 to the Agreement and Plan of Merger and Reorganization, dated as of May 7, 2014, by and between Zalicus and Epirus (as amended, the “Merger Agreement”);

 

  2. To authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation, as amended (the “sixth amended and restated certificate of incorporation”), to effect a reverse stock split of Zalicus’ issued and outstanding shares of common stock, pursuant to which any whole number of outstanding shares between and including 6 and 12, such whole number to be determined by the Zalicus board of directors, would be combined and reclassified into one share of Zalicus common stock;

 

  3. To authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the number of authorized shares of common stock from 200,000,000 to 300,000,000, as described in the joint proxy statement/prospectus, the approval of which is necessary to enable Zalicus to issue the required number of shares of Zalicus common stock to Epirus equityholders in connection with the merger, and to change the name of Zalicus to “EPIRUS Biopharmaceuticals, Inc.” subject to the consummation of the merger;

 

  4. To approve an amendment to the Amended and Restated 2004 Incentive Plan (the “2004 Plan”) to increase the total number of shares of Zalicus common stock currently available for issuance under the 2004 Plan by 3,000,000 shares, after giving effect to the proposed reverse stock split;

 

  5. To elect Michael Kauffman and W. James O’Shea as Class III members of the board of directors, to serve until Zalicus’ 2017 annual meeting of stockholders and until their successors are duly elected and qualified; provided, however, that, if the merger is completed, the board of directors of Zalicus will be reconstituted as described in the joint proxy statement/prospectus;

 

  6. To approve, on a non-binding, advisory basis, the compensation of the named executive officers;

 

  7. To approve, on a non-binding, advisory basis, the “golden parachute” compensation that may be paid or become payable to Zalicus’ named executive officers in connection with the merger;

 

  8. To ratify the selection of Ernst & Young LLP as Zalicus’ independent registered public accounting firm for the fiscal year ending December 31, 2014; and

 

  9. To transact any other business that may properly come before the annual meeting or any adjournment or postponement thereof.

The proposals are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully in its entirety before voting. Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the merger. The issuance of Zalicus common stock in connection with the merger and the amendments to the sixth amended and restated certificate of incorporation of Zalicus will not take place unless all of these proposals are approved by the Zalicus stockholders and the merger is completed. Therefore, the completion of the merger cannot proceed without the approval of Proposal Nos. 1, 2 and 3.


Table of Contents

The board of directors of Zalicus has fixed the close of business on May 16, 2014 as the record date for determining stockholders entitled to notice of, and to vote at, the annual meeting and any adjournment or postponement thereof. Only holders of record of shares of Zalicus common stock at the close of business on the record date are entitled to notice of, and to vote at, the annual meeting. At the close of business on the record date, Zalicus had 26,108,910 shares of common stock outstanding and entitled to vote.

The affirmative vote of a majority of the votes properly cast at the Zalicus annual meeting is required for approval of Proposal Nos. 1, 4, 6, 7 and 8. The affirmative vote of a majority of the shares of outstanding Zalicus common stock on the record date is required for approval of Proposal Nos. 2 and 3. The affirmative vote of a plurality of the votes properly cast at the Zalicus annual meeting is required for approval of Proposal No. 5. Even if you plan to attend the annual meeting in person, Zalicus requests that you sign and return the enclosed proxy and thus ensure that your shares will be represented at the annual meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your shares will be voted in favor of Proposal Nos. 1 through 8. If you fail to return your proxy card and you do not vote in person at the annual meeting, the effect will be the same as if your shares were voted against the adoption of Proposal Nos. 2 and 3 and your shares will not be counted for purposes of determining whether a quorum is present at the annual meeting. If you do attend the Zalicus annual meeting and wish to vote in person, you may withdraw your proxy and vote in person.

All stockholders as of the record date, or their duly appointed proxies, may attend the meeting. If you attend, you will be asked to present valid picture identification such as a driver’s license or passport. If your Zalicus stock is held in a brokerage account or by a bank or other nominee, you are considered the beneficial owner of shares held in street name, and this joint proxy statement/prospectus is being forwarded to you by your broker or nominee. As a result, your name does not appear on the list of stockholders. If your stock is held in street name, in addition to picture identification, you should bring with you a letter or account statement showing that you were the beneficial owner of the stock on the record date, in order to be admitted to the meeting.

If you are a stockholder of record, please submit a proxy card or, for shares held in street name, the voting instruction form you receive from your broker or nominee, as soon as possible so your shares can be voted at the meeting. You may submit your proxy card or voting instruction form by mail. If you are a stockholder of record, you may also vote over the Internet or by telephone. If your shares are held in street name, you will receive instructions from your broker or other nominee explaining how to vote your shares, and you may also have the choice of instructing the record holder as to the voting of your shares over the Internet or by telephone. Follow the instructions on the voting instruction form you received from your broker or nominee.

By Order of the Board of Directors,

 

LOGO

Frank Haydu,

Chairman of the Board of Directors

Cambridge, Massachusetts

June 6, 2014

Important Notice Regarding the Availability of Proxy Materials for the Zalicus 2014 Annual Meeting of Stockholders to Be Held on July 15, 2014: The joint proxy statement/prospectus is available at www.zalicus.com by following the link for “Investors and Media.”


Table of Contents

EPIRUS BIOPHARMACEUTICALS, INC.

699 Boylston Street, 11th Floor

Boston, MA 02116

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To the Stockholders of EPIRUS Biopharmaceuticals, Inc.:

NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of EPIRUS Biopharmaceuticals, Inc., or Epirus, will be held on July 15, 2014, beginning at 9:00 a.m., local time, at Epirus’ corporate headquarters at 699 Boylston Street, 11th Floor, Boston, MA 02116 for the following purposes:

 

  1. To consider and vote upon a proposal to adopt and approve the Agreement and Plan of Merger and Reorganization by and among Zalicus Inc., or Zalicus, BRunning, Inc., a wholly-owned subsidiary of Zalicus, and Epirus, dated as of April 15, 2014, as amended by Amendment No. 1 to the Agreement and Plan of Merger and Reorganization, dated as of May 7, 2014, by and between Zalicus and Epirus and to approve the transactions contemplated thereby; and

 

  2. To transact any other business that may properly come before the special meeting or any adjournment or postponement thereof.

The proposals are described in more detail in the accompanying joint proxy statement/prospectus, which you should read carefully in its entirety before voting.

The board of directors of Epirus has authorized the officers of Epirus to fix the close of business on June 2, 2014 as the record date for determining stockholders entitled to notice of, and to vote at, the special meeting and any adjournment or postponement thereof. Only holders of record of shares of common stock and holders of record of shares of preferred stock at the close of business on the record date are entitled to notice of, and to vote at, the special meeting. Preferred stock consists of Series A preferred stock and Series B preferred stock. Holders of shares of common stock vote on a basis of one vote per share. Holders of shares of each series of preferred stock vote on an as-converted to common stock basis. Each share of preferred stock is currently convertible into one share of common stock.

At the close of business on the record date, Epirus had outstanding and entitled to vote 2,914,865 shares of common stock, 45,534,945 shares of Series A preferred stock and 29,144,209 shares of Series B preferred stock. Unless expressly stated otherwise, common stock and preferred stock are referred to collectively as “Epirus voting stock.”

Your vote is important. The affirmative vote of (i) the holders of a majority of Epirus common stock and Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (ii) the holders of at least seventy percent (70%) of the outstanding shares of Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (iii) the holders of at least seventy-five percent (75%) of the outstanding shares of Epirus Series B preferred stock and (iv) the holders of at least a majority of the outstanding shares of Epirus Series A preferred stock, are the only votes or consents of the holders of any class or series of Epirus capital stock necessary for approval of Proposal No. 1.

Even if you plan to attend the special meeting in person, Epirus requests that you sign and return the enclosed proxy and thus ensure that your shares will be represented at the special meeting if you are unable to attend. If you sign, date and mail your proxy card without indicating how you wish to vote, your shares will be voted as a vote “FOR” Proposal No. 1 as the Epirus board of directors recommends and your shares will be counted for purposes of determining whether a quorum is present at the special meeting. If you do attend the Epirus special meeting and wish to vote in person, you may withdraw your proxy and vote in person. If you do not return your proxy and you do not vote in person at the special meeting, the effect will be the same as if you voted against Proposal No. 1.


Table of Contents

All stockholders as of the record date, or their duly appointed proxies, may attend the meeting. If you attend, you will be asked to present valid picture identification such as a driver’s license or passport.

If you are a stockholder of record, please submit a proxy card as soon as possible so your shares can be voted at the meeting.

By Order of the Board of Directors,

 

LOGO

Amit Munshi

President and Chief Executive Officer

Boston, Massachusetts

June 6, 2014


Table of Contents

TABLE OF CONTENTS

 

     Page  

INFORMATION ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

     1   

CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

     2   

SUMMARY

     11   

RISK FACTORS

     25   

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

     53   

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

     54   

COMPARATIVE MARKET PRICE INFORMATION

     55   

ZALICUS ANNUAL MEETING

     58   

EPIRUS SPECIAL MEETING

     63   

THE MERGER

     66   

MERGER AGREEMENT

     98   

VOTING AGREEMENTS

     115   

MANAGEMENT OF ZALICUS BEFORE AND AFTER THE MERGER

     116   

ZALICUS’ BUSINESS

     136   

ZALICUS MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     151   

ZALICUS PRINCIPAL STOCKHOLDERS

     165   

DESCRIPTION OF ZALICUS COMMON STOCK

     166   

EPIRUS’ BUSINESS

     167   

EPIRUS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     188   

EPIRUS PRINCIPAL STOCKHOLDERS

     208   

COMPARISON OF RIGHTS OF HOLDERS OF ZALICUS COMMON STOCK AND EPIRUS CAPITAL STOCK

     211   

ZALICUS ANNUAL MEETING PROPOSAL NO. 1—APPROVAL OF THE ISSUANCE OF SHARES OF ZALICUS COMMON STOCK IN THE MERGER

     222   

ZALICUS ANNUAL MEETING PROPOSAL NO. 2—AUTHORIZATION OF THE ZALICUS BOARD OF DIRECTORS TO EFFECT A REVERSE STOCK SPLIT

     224   

ZALICUS ANNUAL MEETING PROPOSAL  NO. 3—AMENDMENT TO THE SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED COMMON STOCK AND TO EFFECT THE NAME CHANGE

     230   

ZALICUS ANNUAL MEETING PROPOSAL NO. 4—APPROVAL OF AMENDMENT TO AMENDED AND RESTATED 2004 INCENTIVE PLAN

     232   

ZALICUS ANNUAL MEETING PROPOSAL NO. 5—ELECTION OF ZALICUS DIRECTORS

     238   

ZALICUS ANNUAL MEETING PROPOSAL NO. 6—ADVISORY VOTE ON EXECUTIVE COMPENSATION

     239   

ZALICUS ANNUAL MEETING PROPOSAL NO. 7—ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION

     240   


Table of Contents
     Page  

ZALICUS ANNUAL MEETING PROPOSAL NO. 8—RATIFICATION OF ZALICUS’ INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

     241   

LEGAL MATTERS

     244   

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

    
244
  

EXPERTS

     244   

POLICIES ON REPORTING OF CONCERNS REGARDING ACCOUNTING AND OTHER MATTERS AND ON COMMUNICATING WITH NON-MANAGEMENT DIRECTORS

     244   

STOCKHOLDER PROPOSALS

     244   

WHERE YOU CAN FIND MORE INFORMATION

     245   

IMPORTANT NOTICE REGARDING DELIVERY OF STOCKHOLDER DOCUMENTS

     246   

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

     247   

The following appendices also constitute part of this joint proxy statement/prospectus:

 

Appendix A -

   Agreement and Plan of Merger and Reorganization      A-1   

Appendix B -

   Amendment No. 1 to Agreement and Plan of Merger and Reorganization      B-1   

Appendix C -

   Form of Zalicus Voting Agreement      C-1   

Appendix D -

   Form of Epirus Voting Agreement      D-1   

Appendix E -

   Proposed Form of Certificate of Amendment to the Zalicus Sixth Amended and Restated Certificate of Incorporation for the Reverse Stock Split      E-1   

Appendix F -

   Proposed Form of Certificate of Amendment to the Zalicus Sixth Amended and Restated Certificate of Incorporation for the Share Increase and Name Change      F-1   

Appendix G -

   Proposed Amendment to Zalicus’ Amended and Restated 2004 Incentive Plan      G-1   

Appendix H -

   Opinion of Wedbush Securities Inc.      H-1   

Appendix I -

   EPIRUS Biopharmaceuticals, Inc. Consolidated Financial Statements      I-1   

Appendix J -

   EPIRUS Biopharmaceuticals, Inc. Consolidated Financial Statements for the three months ended March 31, 2014      J-1   

Appendix K -

   Zalicus Inc. Consolidated Financial Statements as of December 31, 2013 and 2012, and for each of the three years in the period ended December 31, 2013      K-1   

Appendix L -

   Zalicus Inc. Condensed Consolidated Financial Statements as of March 31, 2014 and for the three months ended March 31, 2014 and 2013      L-1   

Appendix M -

   Section 262 of the Delaware General Corporation Law      M-1   

 

ii


Table of Contents

INFORMATION ABOUT THIS JOINT PROXY STATEMENT/PROSPECTUS

Except where specifically noted:

 

    the term “Zalicus” refers to Zalicus Inc. and its wholly-owned subsidiaries, the term “Epirus” refers to EPIRUS Biopharmaceuticals, Inc. and its wholly-owned subsidiaries;

 

    the information contained in this joint proxy statement/prospectus does not give effect to the reverse stock split contemplated by Zalicus’ Proposal No. 2;

 

    all references to the numbers of total outstanding shares of Zalicus common stock and related percentages exclude the impact of any changes in Zalicus or the combined company’s capitalization unrelated to the issuance of the merger consideration; and

 

    all references to the numbers of total outstanding options to purchase Zalicus common stock and related percentages exclude the impact of any changes in Zalicus or the combined company’s capitalization unrelated to the issuance of the merger consideration.

In this joint proxy statement/prospectus, the term “preferred stock” refers to (i) Epirus’ Series A preferred stock, par value $0.0001 per share, and (ii) Epirus’ Series B preferred stock, par value $0.0001 per share, collectively.

“Zalicus,” the Zalicus logo and “Synavive” are trademarks of Zalicus. “Epirus” and the Epirus logo are trademarks of Epirus. Other trademarks, service marks and trade names referred to in this prospectus are the property of their respective owners.

 

1


Table of Contents

CAUTIONARY INFORMATION REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus includes statements with respect to Zalicus and Epirus which constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Words such as “believe,” “anticipate,” “expect,” “estimate,” “intend,” “plan,” “project,” “will be,” will continue,” “will result,” “seek,” “could,” “may,” “might,” or any variations of such words or other words with similar meanings are intended to identify such forward-looking statements. Forward-looking statements in this joint proxy statement/prospectus include, without limitation, statements regarding benefits of the proposed merger and future expectations concerning the combined company; any projections of financing needs, revenue, expenses, earnings or losses from operations, or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning product candidate research, development and commercialization plans and timelines; any statements regarding safety and efficacy of product candidates; any statements regarding timing of initiating and completing clinical and pre-clinical trials and studies; any statements of expectation or belief; and any statements regarding other matters that involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to differ materially from results expressed in or implied by this joint proxy statement/prospectus.

The risks, uncertainties and assumptions referred to above include risks that are described in this joint proxy statement/prospectus in the section entitled “Risk Factors” and that are otherwise described from time to time in Zalicus’ Securities and Exchange Commission reports filed after this report. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this joint proxy statement/prospectus. Zalicus and Epirus specifically disclaim any obligation to update these forward-looking statements in the future.

Both Zalicus’ and Epirus’ businesses, and any anticipated benefits of the merger to Zalicus stockholders and Epirus equityholders, may be affected by, among other things:

 

    the timing to complete the merger;

 

    failure to receive necessary stockholder approvals;

 

    the risk that a condition to completion of the merger may not be satisfied;

 

    the risk that a regulatory or other approval that may be required for the merger is delayed, is not obtained or is obtained subject to conditions that are not anticipated or that may be burdensome;

 

    the anticipated benefits of the merger to Zalicus and Epirus and Zalicus’ and Epirus’ ability to achieve the synergies and value creation projected to be realized following completion of the merger;

 

    the diversion of management and workforce time on merger-related issues;

 

    changes in Zalicus’ or Epirus’ businesses, future cash requirements, capital requirements, results of operations, revenues, financial condition and/or cash flows;

 

    operating costs and business disruption that may be greater than expected; and

 

    effects of competition.

 

2


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER

The following questions and answers are intended to address briefly some commonly asked questions regarding the merger and the matters to be addressed at the Zalicus annual meeting and the Epirus special meeting. These questions and answers may not address all questions that may be important to Zalicus stockholders or Epirus stockholders. To better understand these matters, and for a description of the legal terms governing the merger, you should carefully read this entire joint proxy statement/prospectus, including the attached appendices, as well as the documents that have been incorporated by reference into this joint proxy statement/prospectus. See “Where You Can Find More Information” in this joint proxy statement/prospectus. All references in this joint proxy statement/prospectus to Zalicus refer to Zalicus Inc., a Delaware corporation; all references in this joint proxy statement/prospectus to Epirus refer to EPIRUS Biopharmaceuticals, Inc., a Delaware corporation; all references in this joint proxy statement/prospectus to Merger Sub refer to BRunning, Inc., a Delaware corporation and a wholly-owned subsidiary of Zalicus; and all references in this joint proxy statement/prospectus to the merger agreement refer to the Agreement and Plan of Merger and Reorganization, dated as of April 15, 2014, by and among Zalicus, Epirus and Merger Sub, as amended by Amendment No. 1 to the Agreement and Plan of Merger and Reorganization, dated as of May 7, 2014, by and between Zalicus and Epirus, copies of which are attached as Appendix A and Appendix B, respectively, to this joint proxy statement/prospectus, and as may be further amended.

 

Q: Why am I receiving this joint proxy statement/prospectus?

 

A: You are receiving this joint proxy statement/prospectus because you have been identified as a stockholder of either Zalicus or Epirus as of the applicable record date, and thus you are entitled to vote at Zalicus’ annual meeting or Epirus’ special meeting, as the case may be. This document serves as both a joint proxy statement of Zalicus and Epirus, used to solicit proxies for the stockholder meetings, and as a prospectus of Zalicus, used to offer securities of Zalicus in exchange for securities of Epirus pursuant to the terms of the merger agreement. This document contains important information about the merger and the stockholder meetings of Zalicus and Epirus, and you should read it carefully.

 

Q: Why are Zalicus and Epirus proposing this transaction? (see pages 79 and 91)

 

A: The Zalicus and Epirus boards of directors have each approved the merger agreement and have determined that the merger agreement and the transactions contemplated thereunder, including the merger, are advisable and in the best interests of the companies’ respective stockholders. In reaching these decisions, the Zalicus and Epirus boards of directors considered the terms and conditions of the merger agreement and the ancillary agreements, as well as a number of other factors.

 

Q: What will happen in the merger? (see page 66)

 

A: In the merger, Merger Sub will merge with and into Epirus and, as a result, Epirus will become a wholly-owned subsidiary of Zalicus.

 

Q: What will holders of Epirus common stock and preferred stock receive in exchange for Epirus common stock and preferred stock in the merger? (see pages 15, 66 and 109)

 

A: Pursuant to the terms of the merger agreement, holders of Epirus common stock and Epirus preferred stock will receive shares of Zalicus common stock. The number of shares of Zalicus common stock to be issued to all holders of Epirus securities (including in respect of outstanding Epirus options and warrants) will be determined pursuant to an exchange ratio that is based upon the number of shares of Zalicus common stock outstanding at the effective time of the merger, the amount of Zalicus’ net cash as of a certain determination date and the fully diluted capitalization of Epirus immediately prior to the effective time of the merger.

 

Q: How many shares of Zalicus stock will be issued to Epirus equityholders in the merger?

 

A:

Subject to the terms of the merger agreement, the percentage of the combined company that Zalicus stockholders will own as of the closing of the merger is subject to adjustment at the closing based on the

 

3


Table of Contents
  level of Zalicus’ net cash as of a certain determination date. On a pro forma basis, based upon the number of shares of Zalicus common stock to be issued in the merger (including in respect of outstanding Epirus options and warrants), (i) current Zalicus stockholders will own approximately 19% of the combined company and current Epirus equityholders will own approximately 81% of the combined company if Zalicus’ net cash as of a certain determination date is equal to or in excess of $12 million, (ii) current Zalicus stockholders will own approximately 17% of the combined company and current Epirus equityholders will own approximately 83% of the combined company if Zalicus’ net cash as of a certain determination date is in excess of $9 million but less than $12 million, and (iii) current Zalicus stockholders will own approximately 14% of the combined company and current Epirus equityholders will own approximately 86% of the combined company if Zalicus’ net cash as of a certain determination date is equal to or less than $9 million.

 

Q: How much cash will Zalicus have at the closing of the merger?

 

A: Zalicus is exploring different alternatives to increase its level of net cash. However, based on Zalicus’ current level of net cash and taking into account Zalicus’ projected expenses in connection with the proposed transaction, if Zalicus’ net cash were to be determined today, the stockholders of Zalicus would own approximately 17% of the combined company and current Epirus stockholders would own approximately 83% of the combined company. There can be no assurances that any actions taken by Zalicus to attempt to increase its level of net cash between now and the determination date will be successful or that any such alternatives are available to Zalicus.

 

Q: How will the merger consideration be allocated among the Epirus stockholders? (see page 66)

 

A: In accordance with the merger agreement, upon the effective time each outstanding share of Epirus common stock and Epirus preferred stock shall be converted solely into the right to receive a number of shares of Zalicus common stock as determined by the exchange ratio calculations described above.

 

Q: How will the merger affect outstanding stock options to acquire Epirus common stock? (see page 109)

 

A: In connection with the merger, each Epirus stock option outstanding and unexercised immediately prior to the closing, whether or not vested, shall be converted into an option to purchase a number of shares of Zalicus common stock equal to the product of (a) the number of shares of Epirus common stock that were subject to such option and (b) the exchange ratio set forth in the merger agreement (with the resulting number rounded down to the nearest whole number of shares of Zalicus stock) and the per-share exercise price will be equal to the quotient of (i) the per-share exercise price of the Epirus stock option and (ii) the exchange ratio (with the resultant price rounded up to the nearest whole cent), and Zalicus will assume the 2011 Equity Incentive Plan, as amended, of Epirus and the stock options granted thereunder in accordance with their terms. Any restriction on the exercise of any Epirus stock option assumed by Zalicus will continue in full force and the term, exercisability and vesting schedule will remain unchanged as a result of the merger.

 

Q: How will the merger affect outstanding warrants to acquire Epirus capital stock? (see page 109)

 

A: In connection with the merger, each Epirus warrant outstanding immediately prior to the closing shall be converted into a warrant to purchase a number of shares of Zalicus common stock equal to the product of (a) the number of shares of Epirus common stock that were subject to such warrant and (b) the exchange ratio set forth in the merger agreement (with the resulting number rounded down to the nearest whole number of shares of Zalicus stock), and Zalicus will assume each Epirus warrant in accordance with its terms. Any restriction on the exercise of any Epirus warrant assumed by Zalicus will continue in full force and the term and other provisions of such Epirus warrant will remain unchanged as a result of the merger.

 

Q: Who will the members of the combined company’s board of directors be after the merger? (see page 118)

 

A:

Immediately following the effective time of the merger, the board of directors of the combined company is expected to be made up of eight (8) members: (i) five (5) of whom will be nominees of Epirus, namely Geoffrey Duyk, Scott Rocklage, Amit Munshi, J. Kevin Buchi and Daotian Fu, (ii) two (2) of whom will be

 

4


Table of Contents
  designees named by Epirus, subject to the reasonable consent of Zalicus (not to be unreasonably withheld, conditioned or delayed), one (1) of whom shall be William Hunter, M.D., a current director of Zalicus, and (iii) one (1) of whom will be a nominee of Zalicus, namely Mark H.N. Corrigan, M.D., the current president and chief executive officer of Zalicus and a current director of Zalicus, who will serve as chairman of the board of directors.

 

Q: Who will the officers of the combined company be after the merger? (see page 120)

 

A: Immediately following the effective time of the merger, the combined company will operate under the leadership of the Epirus management team with Amit Munshi serving as the president and chief executive officer.

 

Q: Am I entitled to appraisal rights? (see page 228)

 

A: Under the Delaware General Corporation Law, holders of Zalicus common stock are not entitled to appraisal rights in connection with the merger.

Under the Delaware General Corporation Law, holders of Epirus capital stock who deliver to Epirus a written demand for appraisal before the vote on the adoption of the merger agreement at the Epirus special meeting and who do not vote for the adoption and approval of the merger agreement and to approve the merger have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all requirements of Delaware law, which are summarized in this joint proxy statement/prospectus beginning on page L-1. This appraisal amount could be more than, the same as, or less than the amount an Epirus stockholder would be entitled to receive under the merger agreement. Any holder of Epirus capital stock intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to Epirus prior to the vote on the adoption and approval of the merger agreement and the transactions contemplated thereunder, not vote or otherwise submit a proxy in favor of adoption and approval of the merger agreement and the transactions contemplated thereunder and not submit a letter of transmittal. Failure to follow exactly the procedures specified under Delaware law will result in the loss of appraisal rights. Because of the complexity of the Delaware law relating to appraisal rights, if you are considering exercising your appraisal rights, you are encouraged to seek the advice of your own legal counsel.

 

Q: What are the United States federal income tax consequences of the transaction? (see page 94)

 

A: Zalicus and Epirus intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), as described in “The Merger—Material United States Federal Income Tax Consequences of the Merger.” Assuming the merger constitutes a reorganization, subject to the limitations and qualifications described in “The Merger—Material United States Federal Income Tax Consequences of the Merger,” Epirus stockholders generally should not recognize gain or loss for U.S. federal income tax purposes on the receipt of shares of Zalicus common stock issued in connection with the merger. Each Epirus stockholder who receives cash in lieu of a fractional share of Zalicus common stock will be treated for U.S. federal income tax purposes as having received such fractional share pursuant to the merger and then as having exchanged such fractional share for cash in a redemption by Zalicus. An Epirus stockholder should generally recognize capital gain or loss on such a deemed exchange of the fractional share. If the merger is not a reorganization under Section 368(a) of the Code, then, subject to the limitations and qualifications described in “The Merger—Material United States Federal Income Tax Consequences of the Merger,” each Epirus stockholder will generally recognize gain or loss, for U.S. federal income tax purposes, on the receipt of shares of Zalicus common stock issued to such Epirus stockholder in connection with the merger. The tax consequences to each Epirus stockholder will depend on that stockholder’s particular circumstances. Each Epirus stockholder should consult with his, her or its tax advisor for a full understanding of the tax consequences of the merger to that stockholder.

 

Q: Do persons involved in the merger have interests that may conflict with mine as a Zalicus stockholder? (see page 81)

 

A:

Yes. When considering the recommendations of Zalicus’ board of directors, you should be aware that certain Zalicus directors and officers have interests in the merger that are different from, or are in addition

 

5


Table of Contents
  to, yours. The Zalicus board of directors was aware of these interests and considered them, among other matters, in its decision to approve the merger agreement. Upon completion of the merger, it is expected that the employment of Mark H.N. Corrigan, M.D., Zalicus’ president and chief executive officer, and Justin Renz, Zalicus’ executive vice president, chief financial officer, secretary and treasurer will be terminated by us without cause, and each will be entitled to certain severance payments and benefits and each of their outstanding options and restricted stock awards will automatically vest in full. In addition, Zalicus’ directors and officers will continue to be entitled to indemnification and liability insurance benefits from Zalicus after the merger is consummated. Additionally, Dr. Corrigan will serve as chairman and William Hunter, M.D. will serve as a member of the combined company’s board of directors after the merger.

 

Q: Do persons involved in the merger have interests that may conflict with mine as an Epirus stockholder? (see page 93)

 

A: Geoffrey Duyk, Scott Rocklage, Amit Munshi, J. Kevin Buchi, and Daotian Fu, each of whom is a current director of Epirus, are expected to be members of the combined company’s board of directors after the merger. These relationships may have influenced their decision to vote in favor of the merger and to recommend that Epirus stockholders vote in favor of the merger and related transactions. In addition, certain of the current executive officers or key employees of Epirus are expected to serve as executive officers or key employees of Zalicus at the effective time of the merger.

Moreover, Epirus has entered into a binding term sheet with Livzon Mabpharm Inc. (“Livzon”), a stockholder of Epirus, for development and commercialization of certain biosimilar pipeline products in China and related territories (as described further below under the caption “Risk Factors” beginning on page 25). As a stockholder of Epirus, Livzon’s interests in the merger may differ from its commercial interests in the development and commercialization of Epirus products.

 

Q: What Zalicus proposals will be voted on at the Zalicus annual meeting in connection with the merger? (see page 58)

 

A: Pursuant to the terms of the merger agreement, the following Zalicus proposals must be approved by the requisite stockholder vote:

 

    Proposal No. 1 to approve the issuance of shares of Zalicus common stock in the merger as contemplated by the merger agreement;

 

    Proposal No. 2 to authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect a reverse stock split of Zalicus’ issued and outstanding shares of common stock, pursuant to which any whole number of outstanding shares between and including 6 and 12, such amount to be determined by the Zalicus board of directors and mutually agreed to by Zalicus and Epirus, would be combined and reclassified into one share of Zalicus common stock, which may be necessary for Zalicus to maintain its eligibility for continued listing on The NASDAQ Capital Market; and

 

    Proposal No. 3 to authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the number of authorized shares of common stock from 200,000,000 to 300,000,000, the approval of which is necessary to enable Zalicus to issue the required number of shares of Zalicus common stock to Epirus stockholders in connection with the merger, and to change the name of Zalicus to “EPIRUS Biopharmaceuticals, Inc.” subject to the consummation of the merger.

Proposals 1, 2, and 3 are collectively referred to as the “Merger Proposals.” Only holders of record of shares of Zalicus common stock at the close of business on the record date are entitled to notice of, and to vote at, the annual meeting. At the close of business on the record date, Zalicus had 26,108,910 shares of common stock outstanding and entitled to vote.

 

6


Table of Contents
Q: Are the Merger Proposals each conditioned upon each other?

 

A: Yes. Each of the Merger Proposals is conditioned upon the approval of all of the other Merger Proposals and the approval of each Merger Proposal is a condition to completion of the merger. Neither the issuance of Zalicus common stock in connection with the merger, the amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect the reverse stock split nor the amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the number of authorized shares of common stock and effect the name change will take place unless all of the Merger Proposals are approved by the Zalicus stockholders and the merger is completed. Therefore, the completion of the merger cannot proceed without the approval of each of the Merger Proposals.

 

Q: What Zalicus proposals are to be voted on at the Zalicus annual meeting, other than the Merger Proposals required in connection with the merger? (see page 58)

 

A: At the Zalicus annual meeting, the holders of Zalicus common stock will also be asked to consider the following proposals, along with any other business that may properly come before the annual meeting or any adjournment or postponement thereof:

 

    Proposal No. 4 to approve an amendment to 2004 Plan to increase the total number of shares of Zalicus common stock currently issuable thereunder by 3,000,000, after giving effect to the proposed reverse stock split;

 

    Proposal No. 5 to elect Michael Kauffman and W. James O’Shea as Class III members of the board of directors, to serve until Zalicus’ 2017 annual meeting of stockholders and until their successors are duly elected and qualified; provided, however, that, if the merger is completed, the board of directors of Zalicus will be reconstituted as described in the joint proxy statement/prospectus;

 

    Proposal No. 6 to approve, on a non-binding, advisory basis, the compensation of the named executive officers;

 

    Proposal No. 7 to approve, on a non-binding, advisory basis, the “golden parachute” compensation that may be paid or become payable to Zalicus’ named executive officers in connection with the merger; and

 

    Proposal No. 8 to ratify the selection of Ernst & Young LLP as Zalicus’ independent registered public accounting firm for the fiscal year ending December 31, 2014.

The approval of advisory Proposal Nos. 6 and 7 are not binding on the board of directors of Zalicus. The approval of Proposal Nos. 4, 5, 6, 7 and 8 are not conditions to the merger.

 

Q: How does the Zalicus board of directors recommend that stockholders vote on the proposals to be voted on at the Zalicus annual meeting?

 

A: The Zalicus board of directors recommends that stockholders vote “FOR” Proposal Nos. 1 through 8.

 

Q: What is “golden parachute” compensation and why I am being asked to vote on it?

 

A: The Securities and Exchange Commission, or SEC, has adopted rules that require Zalicus to seek an advisory (non-binding) vote on “golden parachute” compensation. “Golden parachute” compensation is compensation that is tied to or based on the merger and that will or may be paid by Zalicus to its named executive officers in connection with the merger.

 

Q: What Epirus stockholder approvals are required for the merger? (see page 63)

 

A:

The affirmative vote (or action by written consent) of (i) the holders of a majority of Epirus common stock and Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (ii) the holders of at least seventy percent (70%) of the outstanding shares of Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (iii) the holders of at least seventy-

 

7


Table of Contents
  five percent (75%) of the outstanding shares of Epirus Series B preferred stock and (iv) the holders of at least a majority of the outstanding shares of Epirus Series A preferred stock, are the only votes or consents of the holders of any class or series of Epirus capital stock necessary for approval of the merger agreement and the transactions proposed thereunder, including the merger.

 

Q: How does the Epirus board of directors recommend stockholders vote on Proposal No. 1?

 

A: The Epirus board of directors recommends that stockholders vote “FOR” Proposal No. 1.

 

Q: Are there any Zalicus stockholders already committed to voting in favor of the proposals to be voted on at the Zalicus annual meeting? (see page 115)

 

A: Yes. Mark H.N. Corrigan, M.D., the president and chief executive officer and a director of Zalicus, Justin A. Renz, the executive vice president, chief financial officer, treasurer and secretary of Zalicus, and Sally W. Crawford, Frank Haydu, William Hunter, M.D., Michael Kauffman, M.D., and W. James O’Shea, each a director of Zalicus, who collectively beneficially own or control approximately 3% of Zalicus’ outstanding common stock as of April 15, 2014, the date of the voting agreements, have each entered into a voting agreement agreeing to vote in favor of the Zalicus proposals and against any alternative acquisition proposal, agreement or transaction.

 

Q: Are there any Epirus stockholders already committed to voting in favor of the merger agreement and the merger? (see page 115)

 

A: Yes. Amit Munshi, the president and chief executive officer and a director of Epirus, Thomas Shea, the chief financial officer of Epirus, Kim Seth, Ph.D., the chief business officer of Epirus, J. Kevin Buchi, a director of Epirus, Livzon, Bestow Mind Limited, 5AM Co-Investors III, L.P., 5AM Ventures III, L.P., Montreux Equity Partners V, L.P., Montreux Equity Partners IV, L.P., TPG Biotechnology Partners III, L.P., and Adage Capital Management, LLC, who collectively beneficially own or control approximately 95% of Epirus’ outstanding common stock as of April 15, 2014, the date of the voting agreements, have each entered into a voting agreement agreeing to vote in favor of the Epirus proposals and against any alternative acquisition proposal, agreement or transaction.

 

Q: Are there risks I should consider in deciding whether to vote for the merger or for the issuance of shares of Zalicus common stock, warrants and options in the merger, as applicable?

 

A: Yes. In evaluating the merger and the issuance of shares of Zalicus common stock, warrants and options in the merger, you should carefully consider the factors discussed in the section titled “Risk Factors” beginning on page 25.

 

Q: Do I need to send in my Epirus stock certificates now? (see page 65)

 

A: No. You should not send in your Epirus stock certificates now. Promptly after the effective time of the merger, the exchange agent will provide stock certificate transmittal materials to the holders of Epirus capital stock. The transmittal materials will contain instructions for surrendering Epirus stock certificates to the exchange agent in exchange for the merger consideration.

You bear the risk of delivery and should send your letter of transmittal by courier, by hand or by fax, with stock certificates delivered by courier or by hand, to the appropriate addresses shown on the letter of transmittal.

 

Q: What do I need to do now?

 

A: First, carefully read this document in its entirety. Then, vote your shares of Zalicus common stock or Epirus capital stock, as applicable, by one of the following methods:

 

    marking, signing, dating and returning your proxy card; or

 

8


Table of Contents
    attending the Zalicus annual meeting or the Epirus special meeting, as applicable, and submitting a properly executed proxy or ballot. If a broker holds your shares of Zalicus common stock in street name (held for your account by a broker or other nominee), you will need to obtain a proxy from your broker to vote your shares in person at the annual meeting.

If you are a stockholder of Zalicus, you may also vote your shares of Zalicus common stock by submitting a proxy over the Internet or by telephone by following the instructions on the enclosed proxy card.

 

Q: How do I vote shares of Zalicus common stock that are held in street name by my broker? (see page 62)

 

A: If your shares are held in street name, you will receive instructions from your broker or other nominee explaining how to vote your shares, and you will have the option to cast your vote by telephone or over the Internet if your voting instruction form from your broker or nominee includes instructions and a toll-free telephone number or Internet website to do so. In any event, to be sure that your vote will be received in time, please cast your vote by your choice of available means at your earliest convenience.

 

Q: What stockholder votes are required to approve the proposals at the Zalicus annual meeting? (see page 60)

 

A: To be approved, Proposal Nos. 1, 4, 6, 7 and 8 must receive the affirmative vote of a majority of the votes properly cast at the Zalicus annual meeting. The affirmative vote of a majority of the shares of Zalicus common stock outstanding as of the record date is required for approval of Proposal Nos. 2 and 3. The affirmative vote of a plurality of the votes properly cast at the Zalicus annual meeting is required for approval of Proposal No. 5.

 

Q: What happens if I do not vote? (see page 60 and page 64)

 

A: The failure to vote in person or by proxy will have the same effect as voting against Epirus’ Proposal No. 1 or against Zalicus’ Proposal Nos. 2 and 3, as applicable. Assuming a quorum is present, a failure to vote will have no effect on the outcome of Zalicus’ Proposal Nos. 1, 4, 5, 6, 7 and 8.

 

Q: What happens if I abstain? (see page 62 and page 65)

 

A: Shares abstaining from voting on a matter will be counted for the purpose of determining whether a quorum exists for the Epirus special meeting or the Zalicus annual meeting, as applicable, but are treated as having not voted. Abstentions will have the same effect as voting against Epirus’ Proposal No. 1 and Zalicus Proposal Nos. 2 and 3, but will have no impact on the outcome of the vote for Zalicus’ Proposal Nos. 1, 4, 5, 6, 7 and 8.

 

Q: Can I change my vote? (see page 62 and page 65)

 

A: Yes. You may revoke your proxy at any time before it is voted by notifying Epirus’ or Zalicus’ secretary, as applicable, in writing, by returning a signed proxy with a later date (or by transmitting a subsequent vote over the Internet or by telephone for a Zalicus proxy) or by attending the meeting and voting in person.

Notices to the secretary of Zalicus should be addressed to: Secretary, Zalicus Inc., 245 First Street, 3rd Floor, Cambridge, Massachusetts 02142.

Notices to the secretary of Epirus should be addressed to: Secretary, EPIRUS Biopharmaceuticals, Inc., 699 Boylston Street, 11th Floor, Boston, Massachusetts 02116.

If your stock is held in street name, you must contact your broker or nominee for instructions as to how to change your vote.

 

Q: When and where will the vote take place? (see page 58 and page 63)

 

A: The Zalicus annual meeting of stockholders will be held at the law firm of Goodwin Procter LLP (“Goodwin Procter”), Exchange Place, 53 State Street, Boston, Massachusetts 02109, on July 15, 2014, starting at 9:00 a.m. local time.

 

9


Table of Contents

The Epirus special meeting of stockholders will be held at Epirus’ corporate headquarters at 699 Boylston Street, 11th Floor, Boston, Massachusetts 02116, on July 15, 2014, starting at 9:00 a.m. local time.

 

Q: Are there any conditions that must be satisfied prior to the completion of the merger? (see page 111)

 

A: Yes. There are a number of conditions that must be satisfied before the completion of the merger, some of which are outside the parties’ control. See “Merger Agreement—Conditions to Completion of the Merger” beginning on page 111.

 

Q: When do you expect the merger to be completed? (see page 98)

 

A: Zalicus and Epirus are working to complete the merger as quickly as practicable and currently expect that the merger could be completed during the summer of 2014. However, Zalicus and Epirus cannot predict the exact timing of the completion of the merger because it is subject to approvals and other conditions.

 

Q: Whom do I call if I have questions about the meetings or the merger? (see page 62 and page 65)

 

A: Zalicus stockholders should direct any questions regarding the annual meeting of stockholders or the merger, including the procedures for voting your shares, to MacKenzie Partners, Inc., our proxy solicitor, by telephone at (212) 929-5500 or (800) 322-2885.

Epirus stockholders should direct any questions regarding the annual meeting of stockholders or the merger, including the procedures for voting your shares, to Edward Scott, Epirus’ director of finance and strategy, by telephone at (617) 600-3415.

 

10


Table of Contents

SUMMARY

This summary highlights selected information contained elsewhere in this joint proxy statement/prospectus. Zalicus and Epirus urge you to read carefully the remainder of this joint proxy statement/prospectus, including the documents attached to this joint proxy statement/prospectus, because the information in this section does not provide all the information that might be important to you regarding the merger and the other matters being considered at the Zalicus annual meeting and the Epirus special meeting.

The Companies (see pages 136 and 167)

Zalicus Inc.

Zalicus Inc., referred to herein as Zalicus, is a biopharmaceutical company pioneering the field of synergistic combination pharmaceuticals. Going beyond traditional combinations, Zalicus uses its innovative drug discovery technology to create product candidates with novel multi-target mechanisms of action striking at the biological complexities of human disease.

Zalicus was incorporated in Delaware in 2000 under the name CombinatoRx, Incorporated. Zalicus completed its initial public offering in November 2005 and its common stock is currently listed on The NASDAQ Capital Market under the symbol “ZLCS.” Zalicus’ principal executive offices are located at 245 First Street, Third Floor, Cambridge, Massachusetts 02142, and its telephone number is (617) 301-7000. Zalicus’ website address is www.zalicus.com. Zalicus’ website is a factual reference and it is not intended to be an active link to the website, and the information contained in the website is not a part of this joint proxy statement/prospectus.

BRunning, Inc.

BRunning, Inc., referred to herein as Merger Sub, is a wholly-owned subsidiary of Zalicus that was recently incorporated in Delaware solely for the purpose of the merger. It does not conduct any business and has no material assets. Its principal executive offices have the same address and telephone number as Zalicus set forth above.

EPIRUS Biopharmaceuticals, Inc.

EPIRUS Biopharmaceuticals, Inc., referred to herein as Epirus, is a commercial-stage biotechnology company focused on improving patient access to important biopharmaceuticals by developing, manufacturing, and commercializing biosimilar therapeutics in targeted geographies worldwide. Epirus’ pipeline of biosimilar product candidates includes BOW015 (infliximab), BOW050 (adalimumab), and BOW030 (bevacizumab), for which the reference biologics Remicade®, Humira®, and Avastin®, respectively, together generated $26.2 billion in global sales in 2013 (Source: EvaluatePharma). Epirus is advancing development and commercialization partnerships in Brazil, China, India, and additional markets in Southeast Asia and North Africa. In March 2014, Epirus’ manufacturing partner, Reliance Life Sciences (RLS), obtained marketing approval in India for BOW015 as a treatment for rheumatoid arthritis.

Epirus was formerly known as Fourteen22, Inc. and changed its name to EPIRUS Biopharmaceuticals, Inc. in January 2013. Fourteen22, Inc. was originally incorporated in November 2008 in the Cayman Islands. In January 2011, Fourteen22, Inc. became a Delaware corporation. Epirus’ principal executive offices are located at 699 Boylston Street, 11th Floor, Boston, MA 02116. Epirus’ website address is www.epirusbiopharma.com. Epirus’ website is a factual reference and it is not intended to be an active link to the website, and the information contained in the website is not a part of this joint proxy statement/prospectus.

 

 

11


Table of Contents

The Combined Company

At the effective time of the merger, the current equityholders of Epirus and current stockholders of Zalicus are expected to own (i) 86% and 14% of the combined company, respectively, if Zalicus has an amount of net cash as of the determination date equal to or less than $9 million, (ii) 83% and 17% of the combined company, respectively, if Zalicus has an amount of net cash as of the determination date greater than $9 million and less than $12 million or (iii) 81% and 19% of the combined company, respectively, if Zalicus has an amount of net cash as of the determination date equal to or in excess of $12 million; provided, that in no event will the current stockholders of Zalicus own less than 14% of the combined company. Zalicus will issue to the current equityholders of Epirus the aggregate number of shares of Zalicus common stock, options and warrants necessary for the current Epirus equityholders to own 86%, 83% or 81%, as applicable, of the outstanding capital stock of the combined company, subject to adjustment based on Zalicus’ net cash, as discussed in “Merger Agreement—Merger Consideration and Adjustment.”

The combined company’s board of directors is expected to consist of (i) one director designated by Zalicus, Mark H.N. Corrigan, M.D., who shall be chairman of the board of directors, (ii) five directors designated by Epirus, who shall be Geoffrey Duyk, Scott Rocklage, Amit Munshi, J. Kevin Buchi and Daotian Fu, and (iii) two other designees named by Epirus but subject to the reasonable consent of Zalicus (not to be unreasonably withheld, conditioned or delayed), one of whom shall be William Hunter, M.D., a current director of Zalicus. In addition, the combined company will operate under the leadership of the Epirus management team with Amit Munshi serving as the president and chief executive officer. The principal executive office of the combined company is expected to be Epirus’ current principal executive office in Boston, Massachusetts.

The Merger and Merger Agreement (see pages 66 and 98)

The merger agreement is attached to this document as Appendix A and the amendment is attached to this document as Appendix B. You should read the merger agreement carefully, as it is the legal document that governs the merger of Merger Sub, a wholly-owned subsidiary of Zalicus, with and into Epirus, with Epirus as the surviving company of the merger becoming a wholly-owned subsidiary of Zalicus.

Voting Agreements (see page 115)

In connection with the execution of the merger agreement, Amit Munshi, the president and chief executive officer and a director of Epirus, Thomas Shea, the chief financial officer of Epirus, Kim Seth, Ph.D., the chief business officer of Epirus, J. Kevin Buchi, a director of Epirus, Livzon, Bestow Mind Limited, 5AM Co-Investors III, L.P., 5AM Ventures III, L.P., Montreux Equity Partners V, L.P., Montreux Equity Partners IV, L.P., TPG Biotechnology Partners III, L.P., and Adage Capital Management, LLC entered into voting agreements with Zalicus and Epirus under which such stockholders have agreed to vote in favor of the merger and against any alternative acquisition proposal, agreement or transaction. These entities collectively beneficially own or control approximately 95% of the voting power of Epirus on an as-converted to common stock basis as of April 15, 2014, the date of the voting agreements. These voting agreements grant Zalicus irrevocable proxies to vote any shares of Epirus stock over which such stockholder has voting power in favor of each of the Epirus proposals described elsewhere in this joint proxy statement/prospectus and against any alternative acquisition proposal, agreement or transaction.

In connection with the execution of the merger agreement, Mark H.N. Corrigan, M.D., the president and chief executive officer and a director of Zalicus, Justin A. Renz, the executive vice president, chief financial officer, secretary and treasurer of Zalicus, and Sally W. Crawford, Frank Haydu, William Hunter, M.D., Michael Kauffman, M.D., and W. James O’Shea, each a director of Zalicus, who collectively beneficially own or control approximately 3% of Zalicus’ outstanding common stock as of April 15, 2014, also entered into voting agreements with Zalicus and Epirus under which such stockholders have agreed to vote in favor of the Zalicus

 

 

12


Table of Contents

proposals that relate to the merger described elsewhere in this joint proxy statement/prospectus and against any alternative acquisition proposal, agreement or transaction. Each of these voting agreements grants Epirus irrevocable proxies to vote any shares of Zalicus stock over which such stockholder has voting power in favor of each of the Zalicus proposals described elsewhere in this joint proxy statement/prospectus and against any alternative acquisition proposal, agreement or transaction.

Annual Meeting of Zalicus Stockholders (see page 58)

Time, Date and Place. The annual meeting of the stockholders of Zalicus will be held on July 15, 2014, at the offices of Goodwin Procter LLP, Exchange Place, 53 State Street, Boston, MA 02109, at 9:00 a.m., local time, to vote on Proposal No. 1 to approve the issuance of shares of Zalicus common stock in the merger; Proposal No. 2 to authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect a reverse stock split of Zalicus’ issued and outstanding shares of common stock, pursuant to which any whole number of outstanding shares between and including 6 and 12, such whole number to be determined by the Zalicus board of directors, would be combined and reclassified into one share of Zalicus common stock; Proposal No. 3 to authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the authorized shares of common stock of Zalicus to 300,000,000 shares and to effect the name change to “EPIRUS Biopharmaceuticals, Inc.”; Proposal No. 4 to increase the aggregate number of shares authorized for issuance under the 2004 Plan by 3,000,000 shares of common stock, after giving effect to the proposed reverse stock split; Proposal No. 5 to elect Michael Kauffman, M.D. and W. James O’Shea as Class III members of the board of directors, to serve until Zalicus’ 2017 annual meeting of stockholders and until their successors are duly elected and qualified; provided, however, that, if the merger is completed, the board of directors of Zalicus will be reconstituted as described in this joint proxy statement/prospectus; Proposal No. 6 to approve, on an advisory basis, the compensation of the named executive officers; Proposal No. 7 to approve the compensation that may be paid or become payable to Zalicus’ named executive officers in connection with the merger, as disclosed in the table entitled “Golden Parachute Compensation” pursuant to Item 402(t) of Regulation S-K; and Proposal No. 8 to ratify the selection of Ernst & Young LLP as Zalicus’ independent registered public accounting firm for the fiscal year ending December 31, 2014.

Record Date and Voting Power. You are entitled to vote at the Zalicus annual meeting if you owned shares of Zalicus common stock at the close of business on May 16, 2014, the record date for the Zalicus annual meeting. You will have one vote for each matter presented at the annual meeting for each share of Zalicus common stock you owned at the close of business on the record date. As of the record date, there are 26,108,910 shares of Zalicus common stock entitled to vote at the annual meeting.

Required Vote. The affirmative vote of a majority of the outstanding common stock on the record date is required for approval of Proposal Nos. 2 and 3. The affirmative vote of a majority of the votes properly cast at the Zalicus annual meeting is required for approval of Proposal Nos. 1, 4, 6, 7 and 8. The affirmative vote of a plurality of the votes properly cast at the Zalicus annual meeting is required for approval of Proposal No. 5.

Share Ownership of Management. As of May 16, 2014, the current directors and executive officers of Zalicus, together with their affiliates, collectively beneficially own or control approximately 3% of the shares entitled to vote at the Zalicus annual meeting. In connection with the execution of the merger agreement, stockholders of Zalicus collectively beneficially owning or controlling approximately 3% of the outstanding voting stock of Zalicus entered into voting agreements pursuant to which they have agreed to vote their shares of Zalicus common stock in favor of the Zalicus proposals submitted at Zalicus’ annual meeting. The voting agreements are described in the section “Voting Agreements” on page 115.

 

 

13


Table of Contents

Special Meeting of Epirus Stockholders (see page 63)

Time, Date and Place. The special meeting of the stockholders of Epirus will be held on July 15, 2014, at Epirus’ corporate headquarters at 699 Boylston Street, 11th Floor, Boston, Massachusetts 02116, at 9:00 a.m., local time, to vote on Proposal No. 1 to approve and adopt the merger agreement and to approve the merger.

Record Date and Voting Power. You are entitled to vote at the Epirus special meeting if you owned shares of Epirus common stock or preferred stock at the close of business on June 2, 2014, the record date for the special meeting. At the Epirus special meeting, you will have one vote for each share of common stock or preferred stock you owned at the close of business on the record date.

As of June 2, 2014 there are 2,914,865 shares of Epirus common stock and 74,679,154 shares of Epirus preferred stock entitled to vote at the special meeting. All such stock is referred to collectively as the “Epirus voting stock.”

Required Vote. The affirmative vote of (i) the holders of a majority of the Epirus common stock and Epirus preferred stock, voting together as a single class (on an as-converted to Epirus common stock basis), (ii) the holders of at least seventy percent (70%) of the outstanding shares of the Epirus preferred stock, voting together as a single class (on an as-converted to Epirus common stock basis), (iii) the holders of at least seventy-five percent (75%) of the outstanding shares of Epirus Series B preferred stock and (iv) the holders of at least a majority of the outstanding shares of Epirus Series A preferred stock is required for approval of Proposal No. 1.

Share Ownership of Management. As of May 1, 2014, the directors, executive officers and greater than 5% holders of Epirus beneficially owned shares of Epirus capital stock representing approximately 92% of the outstanding voting power of Epirus capital stock entitled to vote at the Epirus special meeting. Stockholders of Epirus beneficially owning shares of Epirus voting stock representing approximately 95% of the outstanding voting power of Epirus as of April 15, 2014 have agreed to vote their shares in favor of the approval and adoption of the merger agreement and the approval of the merger. Certain of these stockholders are affiliated with directors of Epirus.

Recommendation to Zalicus Stockholders (see page 59)

To Zalicus Stockholders. The Zalicus board of directors has determined and believes that the issuance of shares of Zalicus common stock in the merger and the other proposals described in this joint proxy statement/prospectus are advisable to and in the best interests of Zalicus and its stockholders. The Zalicus board of directors recommends that the holders of Zalicus common stock vote “FOR” Proposal Nos. 1 through 8 at the annual meeting of stockholders of Zalicus.

Recommendation to Epirus Stockholders (see page 63)

To Epirus Stockholders. The Epirus board of directors has determined and believes that the merger agreement and the merger are advisable to, and in the best interest of, Epirus and its stockholders. The Epirus board of directors recommends that the Epirus stockholders vote “FOR” Proposal No. 1 at the special meeting of stockholders of Epirus.

Risk Factors

The merger poses a number of risks to each company and its respective stockholders. In addition, both Zalicus’ and Epirus’ businesses and industries are subject to various risks. These risks are discussed in detail under the caption “Risk Factors” beginning on page 25. You are encouraged to read and consider all of these risks carefully.

 

 

14


Table of Contents

Opinion of Zalicus’ Financial Advisor (see page 84)

Zalicus’ board of directors engaged Wedbush Securities Inc. (referred to herein as “Wedbush”), to provide financial advisory and investment banking services in connection with a potential strategic transaction, and ultimately requested that Wedbush render an opinion as to whether the consideration to be paid by Zalicus in connection with the merger with Epirus, as provided in the merger agreement, was fair to the holders of common stock of Zalicus (other than any affiliate of Zalicus, any holder of capital stock of Epirus or any of their respective affiliates) from a financial point of view. Wedbush rendered its oral and written opinion to Zalicus’ board of directors that, as of April 15, 2014, and based upon the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review set forth in its written opinion, the merger consideration to be paid by Zalicus in connection with the merger, as provided in the merger agreement, was fair to the holders of common stock of Zalicus (other than any affiliate of Zalicus, any holder of capital stock of Epirus or any of their respective affiliates) from a financial point of view.

The full text of Wedbush’s written opinion, which sets forth the procedures followed, assumptions made, matters considered, and limitations and qualifications of the review undertaken in connection with the opinion, is attached as Appendix H and is incorporated by reference. Wedbush’s opinion was intended for the use and benefit of Zalicus’ board of directors in connection with its evaluation of the merger. Wedbush’s opinion does not address Zalicus’ underlying business decision to enter into the merger agreement or complete the merger or the relative merits of the merger compared to any alternative business strategies that may be available to Zalicus and does not constitute a recommendation to Zalicus’ board of directors or any stockholder as to how that person should vote on the merger or any related matter. Zalicus urges you to read the entire opinion of Wedbush carefully.

Treatment of Epirus Equity Awards (see page 66)

In connection with the merger, each Epirus stock option outstanding and unexercised immediately prior to the closing, whether or not vested, shall be converted into an option to purchase a number of shares of Zalicus common stock equal to the product of (a) the number of shares of Epirus common stock that were subject to such option and (b) the exchange ratio (with the resulting number rounded down to the nearest whole number of shares of Zalicus stock) and the per-share exercise price will be equal to the quotient of (i) the per-share exercise price of the Epirus stock option and (ii) the exchange ratio (with the resultant price rounded up to the nearest whole cent), and Zalicus will assume the 2011 Equity Incentive Plan, as amended, of Epirus and the stock options granted thereunder in accordance with their terms. Any restriction on the exercise of any Epirus stock option assumed by Zalicus will continue in full force and the term, exercisability and vesting schedule will remain unchanged as a result of the merger. The Zalicus board of directors or a committee thereof will succeed to the authority and responsibility of the Epirus board of directors with respect to each such assumed stock option.

Directors and Management of the Combined Company after the Merger (see page 110)

Immediately following the effective time of the merger, the board of directors of the combined company is expected to be made up of eight (8) members: (i) five (5) of whom will be nominees of Epirus, namely Geoffrey Duyk, Scott Rocklage, Amit Munshi, J. Kevin Buchi and Daotian Fu, (ii) two (2) of whom will be designees named by Epirus, subject to the reasonable consent of Zalicus (not to be unreasonably withheld, conditioned or delayed), one (1) of whom shall be William Hunter, M.D., a current director of Zalicus, and (iii) one (1) of whom will be a nominee of Zalicus, namely Mark H.N. Corrigan, M.D., the current president and chief executive officer of Zalicus and a current director of Zalicus, who will serve as chairman of the board of directors.

The Merger is Expected to be Completed During the Summer of 2014 (see page 98)

The merger will occur no later than two business days after the conditions to its completion have been satisfied or, to the extent permitted by applicable law, waived, unless otherwise mutually agreed by the parties to

 

 

15


Table of Contents

the merger agreement. As of the date of this joint proxy statement/prospectus, the merger is expected to be completed during the summer of 2014. However, there can be no assurance as to when, or if, the merger will occur.

Subject to certain conditions described below, if the merger is not completed on or before October 31, 2014, either Zalicus or Epirus may terminate the merger agreement.

Non-Solicitation of Transactions; Changes to Recommendation (see page 106)

As more fully described in this joint proxy statement/prospectus and in the merger agreement, and subject to the exceptions described below, Zalicus and Epirus have agreed that neither Zalicus nor Epirus nor its subsidiaries, nor any of its officers, directors, employees, representatives, affiliates, advisors or agents shall directly or indirectly: (i) initiate, solicit, seek or knowingly encourage or support any inquiries, proposals or offers that constitute or may reasonably be expected to lead to any competing proposal, (ii) engage or participate in, or knowingly facilitate, any discussions or negotiations regarding any inquiries, proposals or offers that constitute, or may reasonably be expected to lead to, a competing proposal, (iii) furnish to any person or entity (other than Zalicus or Epirus) any non-public information that could reasonably be expected to be used for the purposes of formulating any competing proposal, (iv) waive, terminate, modify or release any person or entity (other than Zalicus or Epirus and their respective affiliates) from any provision of or grant any permission, waiver or request under any “standstill” or similar agreement or obligation, (v) enter into any letter of intent, agreement in principle or other similar type of agreement relating to a competing proposal, or enter into any agreement or agreement in principle requiring either Zalicus or Epirus, as the case may be, to abandon, terminate or fail to consummate the merger, or (vi) resolve, propose or agree to do any of the foregoing.

Notwithstanding the foregoing, at any time prior to the approval of the proposals relating to the merger set forth in this joint proxy statement/prospectus at the meeting of the stockholders of either Zalicus or Epirus, as the case may be, either Zalicus or Epirus may, after providing written notice to the other party, furnish nonpublic information to and engage in discussions or negotiations with any third party that makes an unsolicited bona fide written competing proposal that its board of directors in good faith, after consultation with its outside legal counsel and independent financial advisors, has determined constitutes or would reasonably be expected to lead to a superior competing proposal (as defined under “Merger Agreement—No Solicitation”), only if:

 

    such party receives from such third party an executed confidentiality agreement the terms of which are not less restrictive to the third party than those contained in the confidentiality agreement between Zalicus and Epirus;

 

    such party receiving the competing proposal contemporaneously supplies to the other party (Zalicus or Epirus, as the case may be) any nonpublic information or access to any such nonpublic information granted to such third party to the extent it had not been previously provided or made available;

 

    such party has not breached the no solicitation provisions of the merger agreement; and

 

    the board of directors of Zalicus or Epirus, as the case may be, determines in good faith, after consultation with its outside legal counsel and financial advisors, that taking such actions would be required to comply with the fiduciary duties of the board of directors under applicable laws.

Zalicus and Epirus shall notify the other no later than twenty-four hours after receipt of any inquiries, discussions, negotiations, proposals or expressions of interest with respect to a competing proposal, and any such notice shall be made orally and in writing and shall indicate in reasonable detail the terms and conditions of such proposal, inquiry or contact, including price, and the identity of the offeror. Both Zalicus and Epirus shall keep the other fully informed, on a current basis, of the status and material developments (including any changes to the terms) of such competing proposal.

 

 

16


Table of Contents

Regulatory Approvals (see page 109)

Neither Zalicus nor Epirus is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, Zalicus must comply with applicable federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Zalicus’ common stock in the merger, including the filing with the SEC of this proxy statement. The merger agreement provides that Epirus and Zalicus shall respond as promptly as is practicable in compliance with: (i) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for information or documentation; and (ii) any inquiries or requests received from any other governmental body in connection with antitrust or competition matters.

Termination of the Merger Agreement (see page 112)

As more fully described in this joint proxy statement/prospectus and in the merger agreement, and subject to the terms and conditions described in the merger agreement, the merger agreement may be terminated at any time before completion of the merger in any of the following ways:

 

    by mutual written consent duly authorized by the board of directors of each of Epirus and Zalicus;

 

    by Zalicus or Epirus if:

 

    the merger has not been completed by October 31, 2014; provided, that this right to terminate the merger agreement will not be available to any party whose action or failure to act has been a principal cause of the failure of the merger to be completed by such date and such action or failure to act constitutes a breach of the merger agreement; provided, further, that, in the event this proxy statement is still being reviewed or commented on by the SEC, either party shall be entitled to extend the date for termination of the merger agreement for an additional sixty (60) days and in the event of any dispute with respect to the net cash calculation, the date for termination of the merger agreement shall be extended until five business days after an independent accountant provides its report;

 

    a court or other governmental entity has issued a final and non-appealable order, decree or ruling or taken any other action that permanently restrains, enjoins or otherwise prohibits the merger;

 

    (i) the meeting of the stockholders of Zalicus (including any adjournments and postponements thereof) has been held and completed and Zalicus’ stockholders have taken a final vote on the proposals and (ii) the stockholders of Zalicus have not given the requisite approval to consummate the merger or any of the transactions contemplated by the merger agreement, including the reverse stock split; provided, that this right to terminate the merger agreement shall not be available to Zalicus if failure to obtain the approval of the Zalicus stockholders was caused by the action or failure to act of Zalicus and such action or failure to act constitutes a material breach by Zalicus of the merger agreement;

 

    (i) the meeting of the stockholders of Epirus (including any adjournments and postponements thereof) has been held and completed and Epirus’ stockholders have taken a final vote on the merger agreement and the transactions contemplated by the merger agreement and (ii) the stockholders of Epirus have not given the requisite approval to consummate the merger; provided, that this right to terminate the merger agreement shall not be available to Epirus if failure to obtain the approval of the Epirus stockholders was caused by the action or failure to act of Epirus and such action or failure to act constitutes a material breach by Epirus of the merger agreement;

 

   

if the other party has breached any of its representations, warranties, covenants or agreements contained in the merger agreement or if any representation or warranty of the other party has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of time of such breach or inaccuracy; provided, however, that if such breach or

 

 

17


Table of Contents
 

inaccuracy is curable, then the merger agreement will not terminate as a result of a particular breach or inaccuracy until the earlier of the expiration of a 30-day period after delivery of written notice of such breach or inaccuracy and the breaching party ceasing to exercise commercially reasonable efforts to cure such breach; or

 

    the other party has entered into a definitive agreement to effect a superior competing proposal;

 

    by Epirus at any time prior to the approval of the issuance of the shares of Zalicus common stock pursuant to the merger, if:

 

    a change of recommendation by the board of directors and/or any committee of the board of directors of Zalicus occurs; or

 

    Zalicus fails to include in this proxy statement the recommendation of its board of directors;

 

    by Zalicus at any time prior to the adoption of the merger agreement by the stockholders of Epirus, if:

 

    a change of recommendation by the board of directors and/or any committee of the board of directors of Epirus occurs; or

 

    Epirus fails to include in this proxy statement the recommendation of its board of directors.

Zalicus shall pay to Epirus a termination fee of $1.1 million if the merger agreement is terminated as a result of Zalicus’ board of directors making a change of recommendation, as a result of Zalicus failing to include in this proxy statement the recommendation of its board of directors or as a result of Zalicus entering into a definitive agreement to effect a superior competing proposal.

Epirus shall pay to Zalicus a termination fee of $2.5 million if the merger agreement is terminated as a result of Epirus’ board of directors making a change of recommendation, as a result of Epirus failing to include in this proxy statement the recommendation of its board of directors or as a result of Epirus entering into a definitive agreement to effect a superior competing proposal.

Completion of the Merger is Subject to Certain Conditions (see page 111)

As more fully described in this joint proxy statement/prospectus and in the merger agreement, and subject to the terms and conditions described in the merger agreement, the respective obligations of Zalicus and Epirus to complete the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction or waiver of various conditions that include, in addition to other customary closing conditions, the following:

 

    there must not have been issued any temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger, and no law, statute, rule, regulation, ruling or decree shall be in effect which has the effect of making the consummation of the merger illegal;

 

    stockholders of Epirus must have approved and adopted the merger agreement and approved the merger, and stockholders of Zalicus must have approved the issuance of Zalicus common stock to the stockholders of Epirus in the merger, approved an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect a reverse stock split and approved an amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the number of authorized shares of Zalicus and to change the name of Zalicus effective upon the closing of the merger;

 

   

there must not be any legal proceeding pending, or overtly threatened in writing by an official of any governmental body in which such governmental body indicates that it intends to conduct any legal proceeding or take any action challenging or seeking to restrain or prohibit the consummation of the merger; relating to the merger and seeking to obtain from Zalicus, acquisition subsidiary or Epirus any

 

 

18


Table of Contents
 

damages or other relief that may be material to Zalicus or Epirus; or seeking to prohibit or limit in any material and adverse respect a party’s ability to vote, transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of Zalicus;

 

    the registration statement of which this document is a part shall have been declared effective under the Securities Act of 1933, as amended, and no stop order suspending the effectiveness of the registration agreement or this joint proxy statement/prospectus shall have been issued and no proceedings for such purpose shall have been initiated or threatened by the SEC or any other governmental authority and no similar proceeding in respect of this joint proxy statement/prospectus shall have been initiated or threatened by the SEC or any governmental authority;

 

    Zalicus and Epirus shall have agreed in writing on the calculation of Zalicus’ net cash as of the closing, or an independent accountant shall have delivered its report with respect to the same, pursuant to the terms of the merger agreement;

 

    the representations and warranties of the other party set forth in the merger agreement must be true and correct without reference to any qualification as to materiality, except where a failure to be true and correct would not have a material adverse effect on the party making the representations and warranties; and

 

    the other party to the merger agreement must have performed in all material respects all of its agreements and covenants required by the merger agreement and provided a certificate to such effect.

The obligations of Zalicus and Merger Sub to complete the merger are also subject to the satisfaction or waiver of the following conditions:

 

    there must not have occurred, since the date of the merger agreement, any material adverse effect on Epirus and its subsidiaries that is continuing; and

 

    the Epirus stockholders shall have approved an amendment to the certificate of incorporation of Epirus.

The obligations of Epirus to complete the merger are also subject to the satisfaction or waiver of the following conditions:

 

    there must not have occurred, since the date of the merger agreement, any material adverse effect on Zalicus and its subsidiaries that is continuing; and

 

    Zalicus’ net cash as of the closing shall not be less than $3.0 million, as calculated pursuant to the terms of the merger agreement.

Solicitation of Proxies; Cost of Solicitation (see page 62)

The cost of solicitation of proxies will be borne by Zalicus and, in addition to soliciting stockholders by mail through its regular employees, Zalicus may request banks, brokers and other custodians, nominees and fiduciaries to solicit their customers who have Zalicus common stock registered in the names of a nominee and, if so, will reimburse such banks, brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket costs. Zalicus has engaged MacKenzie Partners, Inc. to assist it in the distribution and solicitation of proxies at a fee not to exceed $40,000. Solicitation by Zalicus’ officers and employees may also be made of some stockholders in person or by mail, telephone, e-mail or telegraph following the original solicitation.

Reverse Stock Split (see page 224)

Approval of a reverse stock split is a condition to the closing of the merger agreement. In addition, the Zalicus board of directors believes that a reverse stock split could improve the marketability and liquidity of

 

 

19


Table of Contents

Zalicus common stock. The Zalicus board of directors has approved an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect a reverse stock split of Zalicus’ issued and outstanding shares of common stock, pursuant to which any whole number of outstanding shares between and including 6 and 12, such whole number to be determined by the Zalicus board of directors and mutually agreed to by Zalicus and Epirus, would be combined and reclassified into one share of Zalicus common stock, which may be necessary for Zalicus to maintain its eligibility for continued listing on The NASDAQ Capital Market. The Zalicus board of directors has declared such proposed amendment to be advisable and has recommended that this proposed amendment be presented to Zalicus stockholders for approval.

Increase in Authorized Shares of Zalicus Common Stock (see page 230)

At present, Zalicus does not have sufficient authorized shares of its common stock in order to effect the merger and to issue the Zalicus common stock in the merger pursuant to the merger agreement. The Zalicus board of directors has approved a proposal to amend its sixth amended and restated certificate of incorporation to increase the authorized shares of common stock from 200,000,000 to 300,000,000 shares, subject to stockholder approval. The Zalicus board of directors has declared this amendment proposed in Proposal No. 3 to be advisable and recommended that this proposal be presented to Zalicus stockholders for approval. While the primary purpose for the increase in authorized shares is to effect the merger, the Zalicus board of directors believes it is also desirable to have additional shares available for other corporate purposes that might arise in the future, other than in connection with the merger, although, at present, Zalicus has no plans to issue shares for any other purpose.

Other Matters to be Considered at the Zalicus Annual Meeting (see pages 232, 238, 239, 240 and 241)

At the Zalicus annual meeting, the stockholders of Zalicus stock will be also be asked to consider and vote on:

 

    the election of Michael Kauffman, M.D. and W. James O’Shea as Class III members of the board of directors, to serve until Zalicus’ 2017 annual meeting of stockholders and until their successors are duly elected and qualified; provided, however, that, if the merger is completed, the board of directors of Zalicus will be reconstituted as described in the joint proxy statement/prospectus;

 

    an advisory (non-binding) vote to approve executive compensation;

 

    a resolution approving, on an advisory (non-binding) basis, specified compensation that may become payable to the named executive officers of Zalicus in connection with the merger;

 

    an amendment to the 2004 Plan to increase the total number of shares of Zalicus common stock currently issuable thereunder by 3,000,000, after giving effect to the proposed reverse stock split; and

 

    the ratification of the selection of Ernst & Young LLP as Zalicus’ independent registered public accounting firm for the fiscal year ending December 31, 2014.

Zalicus stockholders will also be asked to consider and transact such other business as may properly come before the Zalicus annual meeting or any adjournment or postponement thereof.

Interests of Zalicus’ Executive Officers and Directors in the Merger (see page 81)

Some of the directors and officers of Zalicus have interests in the merger that are different from, or in addition to, your interests. The Zalicus board of directors was aware of these interests and considered them, among other matters, in its decision to approve the merger agreement. Upon completion of the merger, it is expected that the employment of Mark H.N. Corrigan, M.D., our current president and chief executive officer, and Justin Renz, our current executive vice president, chief financial officer, secretary and treasurer will be

 

 

20


Table of Contents

terminated by Zalicus without cause, and each will be entitled to certain severance payments and benefits and accelerated equity in accordance with their existing employment arrangements with us. Dr. Corrigan shall serve as chairman and William Hunter, M.D., a current board member, shall serve as a member of the Zalicus board of directors following the merger.

Severance Arrangements. Under his employment agreement with Zalicus, if Dr. Corrigan’s employment is terminated without cause or he resigns for good reason within 24 months of a change of control, Dr. Corrigan is entitled to receive a severance payment equal to two times his base salary, full acceleration of all outstanding equity held by Dr. Corrigan and continued payment of his health, dental and vision insurance premiums for a period of 24 months following the termination of employment. Under his employment arrangement with Zalicus, if Mr. Renz’s employment is terminated without cause or he resigns for good reason, whether or not in connection with a change in control, Mr. Renz will be entitled to receive a severance payment equal to 18 months of his base salary, full acceleration of all outstanding options held by Mr. Renz and continued payment of his health and dental insurance premiums for a period of 18 months following his termination of employment.

Equity Acceleration. In addition to the acceleration provided in the severance arrangements described above, each of Dr. Corrigan and Mr. Renz is entitled to accelerated vesting in connection with certain equity awards granted in February 2014, which awards were made, as was customarily done at the outset of each year, in connection with Zalicus’ annual compensation process. On February 10, 2014, Dr. Corrigan was granted an option to purchase 250,000 shares of Zalicus common stock and a restricted stock unit award with respect to 250,000 shares of Zalicus common stock, and Mr. Renz was granted a restricted stock unit award with respect to 250,000 shares of Zalicus common stock. Each award automatically vests with respect to 50% of the shares subject to the award as of the date of a change of control, and the remaining 50% of the award will vest on the six-month anniversary of a change of control, subject to continued employment; provided that if the executive’s employment is terminated without cause or for good reason, then the remaining portion of the award will vest in full.

For further information with respect to the arrangements between Zalicus and Dr. Corrigan and Mr. Renz, see the information included under “The Merger—Interests of Zalicus’ Executive Officers and Directors in the Merger—Golden Parachute Compensation.”

For illustrative purposes, if the completion of the merger were to have occurred on May 16, 2014, the table below sets forth the payments and benefits to which Dr. Corrigan and Mr. Renz would be entitled to receive under the above arrangements, assuming a price per share of $1.18 (the average closing market price of a share of Zalicus common stock over the first five business days following the first public announcement of the merger agreement).

 

     Cash(1)      Equity(2)      Perquisites/
Benefits(3)
     Total  

Mark H.N. Corrigan, M.D.

   $ 1,000,000       $ 327,777       $ 50,962       $ 1,378,739   

Justin A. Renz

   $ 503,661       $ 295,000      $ 22,836       $ 821,497  

 

(1) Amounts in this column represent the lump sum cash severance payment to be paid to each executive upon a termination of employment without “Cause” or a termination for “Good Reason” (as defined in each executive’s respective employment arrangement), subject to the execution and non-revocation of a general release of claims in favor of Zalicus. In the case of Dr. Corrigan, the cash severance would be equal to two times Dr. Corrigan’s base salary in effect at the time of the termination (or, if higher, the base salary at the time of the change in control) and, in the case of Mr. Renz, the cash severance would be equal to 18 months base salary at the rate in effect at the time of the termination. These amounts assume that base salaries remain unchanged from their levels in effect on the date of this joint proxy statement/prospectus.

 

 

21


Table of Contents
(2) These amounts reflect the aggregate amount attributable to the accelerated vesting of all outstanding options and restricted stock units held by the named executive officers. The value of the options was determined by multiplying the number of unvested option shares by the difference between $1.18 (the average closing market price of Zalicus’ common stock over the first five business days following the public announcement of the merger agreement) and the exercise price for such unvested option shares. Assuming a price per share of $1.18, all option awards are out-of-the-money. The value of the restricted stock units was determined by multiplying the number of shares subject to unvested restricted stock units by $1.18 (the average closing market price of Zalicus’ common stock over the first five business days following the announcement of the merger).
(3) Amounts in this column represent (i) in the case of Dr. Corrigan, the estimated value of payments for continuation of medical coverage pursuant to COBRA for 24 months and (ii) in the case of Mr. Renz, the estimated value of payments for continuation of medical coverage pursuant to COBRA for 18 months. Such benefits are subject to the execution and non-revocation of a general release of claims in favor of Zalicus.

In connection with the execution of the merger agreement, certain directors and executive officers of Zalicus entered into voting agreements with Zalicus and Epirus under which they agreed to vote all of the shares beneficially owned by them in favor of the Zalicus proposals described elsewhere in this joint proxy statement/prospectus. As a result of the foregoing, directors and executive officers of Zalicus may be more likely to vote to approve the Zalicus proposals than Zalicus stockholders generally. For more detailed information on the voting agreements, please refer to “Voting Agreements.”

Interests of Epirus’ Executive Officers and Directors in the Merger (see page 93)

Epirus’ directors and management have interests in the merger as individuals in addition to, and that may be different from, the interests of Epirus’ stockholders. The Epirus board of directors was aware of these interests and considered them, among other matters, in its decision to approve the merger agreement.

Geoffrey Duyk, Scott Rocklage, Amit Munshi, J. Kevin Buchi, and Daotian Fu, each of whom is a current director of Epirus, are expected to be members of the Zalicus board of directors after the merger. These relationships may have influenced their decision to vote in favor of the merger and to recommend that Epirus stockholders vote in favor of the merger and related transactions. In addition, certain of the current executive officers or key employees of Epirus are expected to serve as executive officers or key employees of Zalicus at the effective time of the merger.

As of May 1, 2014, Epirus’ executive officers as a group held eligible options to purchase a total of 6,552,099 shares of Epirus common stock with a weighted average exercise price of $0.75 per share. As described under “Summary—Treatment of Epirus Equity Awards,” beginning on page 15, all Epirus options will be converted into options with respect to Zalicus common stock in connection with the merger. For more detailed information on Epirus’ executive officers’ beneficial ownership of Epirus common stock and eligible options held by Epirus’ executive officers, please refer to “Epirus Principal Stockholders.”

Pursuant to the merger agreement, upon the completion of the merger, Zalicus and Epirus agreed that all rights of indemnification, exculpation or advancement of expenses now existing in favor of, and all limitations on the personal liability of each present and former director and officer of Epirus and its subsidiaries as provided for in the respective organizational documents in effect as of the date of the merger agreement, shall continue to be honored and in full force and effect for a period of six years after the closing of the merger; provided, however, that all rights to indemnification in respect of any claims asserted or made within such period shall continue until the disposition of such claim. The certificate of incorporation and by-laws of the combined company will contain provisions with respect to indemnification, exculpation from liability and advancement of expenses that are at least as favorable as those currently in Epirus’ organizational documents and during such six year period following the effective time, Zalicus shall not and shall not cause the combined company to amend, repeal or

 

 

22


Table of Contents

otherwise modify such provisions in any manner that would materially and adversely affect the rights thereunder of individuals who at any time prior to the closing of the merger was a director, officer, employee, fiduciary, or agent of any of Epirus or its subsidiaries in respect of actions or omissions occurring at or prior to the closing of the merger, unless such modification is required by applicable laws. From and after the completion of the merger, Zalicus and the combined company will indemnify and hold harmless each present and former director and officer of Epirus and its subsidiaries in respect of acts or omissions occurring prior to the completion of the merger to the extent provided in any written indemnification agreement in effect as of the date of the merger agreement or required by Epirus’ organizational documents in effect immediately prior to closing.

Zalicus shall purchase a six-year “tail” policy under Zalicus’ existing directors’ and officers’ liability insurance policy, with an effective date as of the closing of the merger.

Certain of the Epirus stockholders who have entered into voting agreements with Epirus and Zalicus, agreeing to vote all shares beneficially owned by them in favor of approval and adoption of the merger agreement and approval of the merger, are affiliated with directors of Epirus.

As a result of the foregoing, the directors and executive officers of Epirus may be more likely to vote to approve the merger than Epirus stockholders generally.

Material United States Federal Income Tax Consequences of the Merger (see page 94)

As discussed in detail in the section entitled “The Merger—Material United States Federal Income Tax Consequences of the Merger” beginning on page 94, Zalicus and Epirus intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code, but, if the merger does not qualify as such a reorganization, an Epirus stockholder will be required to pay U.S. federal income taxes on the amount of any gain such stockholder recognizes as a result of the merger. Determining the actual tax consequences of the merger to you may be complex and will depend on the facts of your own situation. You should consult your tax advisors to fully understand the tax consequences to you of the merger, including estate, gift, state, local or non-U.S. tax consequences of the merger.

Accounting Treatment (see page 97)

Zalicus intends to treat the merger as a purchase by Epirus of Zalicus under accounting principles generally accepted in the United States, or GAAP. Under the purchase method of accounting, the assets and liabilities of Zalicus will be recorded, as of the completion of the merger, at their respective fair values, in the financial statements of Epirus. The financial statements of Epirus issued after the completion of the merger will reflect these values, but will not be restated retroactively to reflect the historical financial position or results of operations of Zalicus.

The NASDAQ Capital Market Listing (see page 97)

Zalicus anticipates that its common stock will continue to be listed on The NASDAQ Capital Market following the completion of the merger under the trading symbol “EPRS” (although, if the proposed reverse stock split is implemented, NASDAQ would likely add the letter “D” to the end of the trading symbol for a period of 20 trading days to indicate that the reverse stock split has occurred). To enable Zalicus to maintain its eligibility for the continued listing of its common stock on The NASDAQ Capital Market, Zalicus is seeking stockholder approval pursuant to this joint proxy statement/prospectus to authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect a reverse stock split of the issued and outstanding shares of Zalicus common stock pursuant to which any whole number of outstanding shares between and including 6 and 12, such whole number to be determined by the Zalicus board of directors and mutually agreed

 

 

23


Table of Contents

to by Zalicus and Epirus, would be combined and reclassified into one share of Zalicus common stock. The reverse stock split will become effective at a time mutually agreed to by Zalicus and Epirus, potentially including after the consummation of the merger.

Appraisal Rights (see page 228)

Under the Delaware General Corporation Law, or the DGCL, holders of Zalicus common stock are not entitled to appraisal rights in connection with the merger.

Under the DGCL, holders of Epirus capital stock who do not vote for the adoption and approval of the merger agreement and to approve the merger have the right to seek appraisal of the fair value of their shares as determined by the Delaware Court of Chancery if the merger is completed, but only if they comply with all requirements of Delaware law, which are summarized in this joint proxy statement/prospectus. This appraisal amount could be more than, the same as, or less than the amount an Epirus stockholder would be entitled to receive under the merger agreement. Any holder of Epirus capital stock intending to exercise appraisal rights must, among other things, submit a written demand for appraisal to Epirus prior to the vote on the adoption and approval of the merger agreement and to approve the merger, not vote or otherwise submit a proxy in favor of adoption and approval of the merger agreement and to approve the merger and not submit a letter of transmittal. Failure to follow exactly the procedures specified under Delaware law will result in the loss of appraisal rights. Because of the complexity of the Delaware law relating to appraisal rights, if you are considering exercising your appraisal rights, you are encouraged to seek the advice of your own legal counsel. A copy of Section 262 of the DGCL is also included as Appendix M to this joint proxy statement/prospectus.

Comparison of Zalicus and Epirus Stockholder Rights (see page 211)

Upon completion of the merger, Epirus stockholders will become stockholders of Zalicus. The internal affairs of Zalicus are governed by Zalicus’ sixth amended and restated certificate of incorporation and amended and restated bylaws. The internal affairs of Epirus are currently governed by Epirus’ bylaws. Due to differences between the governing documents of Zalicus and Epirus, the merger will result in Epirus stockholders’ having different rights once they become Zalicus stockholders.

 

 

24


Table of Contents

RISK FACTORS

Stockholders of Zalicus and Epirus should consider the following risk factors in evaluating whether to vote for the proposals discussed herein. These factors should be considered in conjunction with the other information included in this joint proxy statement/prospectus. References to “we,” “us,” “our” and other first person declarations in these risk factors refer to the operations of the combined company following the completion of the merger. Where this joint proxy statement/prospectus uses the words describing either Zalicus or Epirus, as the case may be, it is referring to such entity as a standalone company or to their respective lines of business and industry as they relate to the combined company. You should also read and consider the risk factors associated with Zalicus because these risk factors may affect the operations and financial results of the combined company.

Risks Relating to the Proposed Merger

The amount of merger consideration is dependent on amount of net cash of Zalicus as of a certain determination date prior to closing.

Subject to the terms of the merger agreement, the percentage of the combined company that Zalicus stockholders will own as of the closing of the merger is subject to adjustment at the closing based on the level of Zalicus’ net cash as of a certain determination date prior to closing. The level of net cash as of that determination date will be reduced by certain specified liabilities, as defined further in the merger agreement, including out-of-pocket costs in connection with any stockholder litigation filed against Zalicus and related parties related to the merger agreement, including amounts payable to financial advisors and attorneys that are paid, incurred or expected to be incurred, payable or subject to reimbursement by Zalicus. Thus, the Zalicus parties’ costs in defending against litigation (including the litigation described in “Stockholder Litigation,” page 114), insofar as these costs reduce net cash, may reduce the percentage of the combined company that Zalicus stockholders will own as of the closing of the merger. On a pro forma basis, based upon the number of shares of Zalicus common stock to be issued in the merger, (including in respect of outstanding Epirus options and warrants) (i) current Zalicus stockholders will own approximately 19% of the combined company and current Epirus equityholders will own approximately 81% of the combined company if Zalicus’ net cash as of the determination date is equal to or in excess of $12 million, (ii) current Zalicus stockholders will own approximately 17% of the combined company and current Epirus equityholders will own approximately 83% of the combined company if Zalicus’ net cash as of the determination date is in excess of $9 million but less than $12 million, and (iii) current Zalicus stockholders will own approximately 14% of the combined company and current Epirus equityholders will own approximately 86% of the combined company if Zalicus’ net cash as of the determination date is equal to or less than $9 million. Based on Zalicus’ current level of net cash and taking into account Zalicus’ projected expenses in connection with the proposed transaction, if the merger were to close today, the stockholders of Zalicus would own approximately 17% of the combined company and current Epirus equityholders would own approximately 83% of the combined company. Zalicus is exploring different alternatives to increase its level of net cash so that its stockholders will own approximately 19% of the combined company. There can be no assurances that any actions taken by Zalicus to attempt to increase its level of net cash between now and closing will be successful or that any such alternatives are available to Zalicus.

We may fail to realize the anticipated benefits of the merger.

The success of the merger will depend on, among other things, our ability to realize anticipated cost savings and to combine the businesses of Zalicus and Epirus in a manner that does not materially disrupt existing relationships or otherwise result in decreased productivity and that allows us to capitalize on the drug development capabilities of the combined company. If we are not able to achieve these objectives, the anticipated benefits of the merger may not be realized fully, may take longer to realize than expected, or may not be realized at all.

Zalicus and Epirus have operated and, until the completion of the merger, will continue to operate independently. It is possible that the integration process could result in the loss of key employees, the disruption of Zalicus’ or Epirus’ ongoing businesses or inconsistencies in standards, controls, procedures or policies that could adversely affect our ability to maintain relationships with third parties and employees or to achieve the

 

25


Table of Contents

anticipated benefits of the merger. For instance, Zalicus’ employee compensation policies may differ from Epirus’. To realize the benefits of the merger, we must retain Epirus’ key employees. Specifically, issues that must be addressed in integrating the operations of Zalicus and Epirus to realize the anticipated benefits of the merger include, among other things, integrating the research and development operations and systems of Zalicus and Epirus. Integration efforts between the two companies will also divert management’s attention and resources. Any delays in the integration process or inability to realize the full extent of the anticipated benefits of the merger could have an adverse effect on our business and the results of our operations. Such an adverse effect on our business may impact the value of the shares of Zalicus common stock after the completion of the merger.

In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. Actual cost synergies, if achieved at all, may be lower than we expect and may take longer to achieve than we anticipate. If we are not able to adequately address these challenges, Zalicus and Epirus may be unable to successfully integrate their operations, or to realize the anticipated benefits of the integration of the two companies.

Because Epirus equityholders will receive a fixed number of shares of Zalicus common stock in the merger, rather than a fixed value, if the market price of Zalicus common stock declines, Epirus equityholders will receive consideration in the merger of lesser value and if the market price of Zalicus common stock increases, Zalicus will pay consideration in the merger of greater value.

The aggregate number of shares of Zalicus common stock to be issued to Epirus equityholders (including in respect of outstanding Epirus options and warrants) will be fixed based on the exchange ratio calculations set forth in the merger agreement. Accordingly, the aggregate number of shares that Epirus equityholders will receive in the merger will not change after Zalicus’ net cash is determined, even if the market price of Zalicus common stock changes. In recent years, the stock market in general, and the securities of biotechnology companies in particular, including Zalicus’ securities, have experienced extreme price and volume fluctuations. These market fluctuations may adversely affect the market price of Zalicus common stock.

The market price of Zalicus common stock upon and after the consummation of the merger could be lower than the market price on the date of the merger agreement or the current market price, which would decrease the value of the consideration to be received in aggregate by Epirus equityholders in the merger. Epirus stockholders should obtain recent market quotations of Zalicus common stock before they vote on the merger. In addition, the market price of Zalicus common stock upon and after the consummation of the merger could be higher than the market price on the date of the merger agreement or the current market price. As a result of the fixed number of shares of Zalicus common stock issuable in the merger, increases in the market price of the Zalicus common stock would increase the value of the consideration payable by Zalicus in the merger. Zalicus stockholders should obtain recent market quotations of Zalicus common stock before they vote on the matters set forth in this joint proxy statement/prospectus.

Zalicus stockholders must approve all of the Merger Proposals to consummate the merger.

Each of the Merger Proposals is conditioned upon the approval of all of the other Merger Proposals and the approval of each Merger Proposal is a condition to completion of the merger. Neither the issuance of Zalicus common stock in connection with the merger, the amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect the reverse stock split nor the amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the number of authorized shares of common stock and effect the name change will take place unless all of the Merger Proposals are approved by the Zalicus stockholders and the merger is completed. Therefore, the completion of the merger cannot proceed without the approval of each of the Merger Proposals.

Future sales of common stock by existing Zalicus and Epirus stockholders may cause the price of Zalicus common stock to fall.

For the six-month period ended April 30, 2014, the average daily trading volume of Zalicus common stock on The NASDAQ Capital Market has been approximately 1,400,000 shares. If Zalicus’ existing stockholders or

 

26


Table of Contents

Epirus stockholders receiving shares of Zalicus common stock in the merger sell substantial amounts of Zalicus common stock in the public market, or investors perceive that these sales could occur, the market price of Zalicus common stock could decrease significantly.

Ownership of the combined company’s common stock will be highly concentrated after consummation of the merger.

After consummation of the merger, certain stockholders will have beneficial ownership of significant blocks of outstanding common stock of the combined company. Investment funds affiliated with 5AM Ventures III, L.P., Montreux Equity Partners IV, L.P., TPG Biotechnology Partners III, L.P. and Livzon MabPharm Inc. will own or control approximately 18.7%, 18.6%, 18.6% and 13.1% of the outstanding shares of common stock of Zalicus, on a fully-diluted basis after the merger based upon an assumed Zalicus net cash balance equal to or less than $9 million on the relevant determination date. In addition, three directors of Zalicus after the merger, Scott Rocklage, Geoffrey Duyk and Daotian Fu are affiliated with 5AM Ventures III, L.P., TPG Biotechnology Partners III, L.P. and Livzon MabPharm Inc., respectively. Such stockholders, acting individually or as a group, will have substantial influence over the outcome of a corporate action requiring stockholder approval, including the election of directors, any approval of a merger, consolidation or sale of all or substantially all of our assets or any other significant corporate transaction, even if the outcome sought by such stockholders is not in the interest of our other stockholders. These stockholders, acting as a group, may also delay or prevent a change in control, even if such change in control would benefit our other stockholders. In addition, the significant concentration of stock ownership may adversely affect the value of Zalicus common stock due to a resulting lack of liquidity of Zalicus common stock or a perception among investors that conflicts of interest may exist or arise.

Zalicus and Epirus expect to incur significant costs in connection with the merger and in integrating the companies into a single business.

Zalicus and Epirus will incur significant transaction costs associated with the merger. In addition, Zalicus and Epirus expect to incur significant costs integrating the companies’ operations, product candidates and personnel, which cannot be estimated accurately at this time. These costs may include costs for severance, legal fees and reorganization of facilities and personnel. If the total costs of the merger exceed estimates, or benefits of the merger do not exceed the total costs of the merger, our financial results could be adversely affected.

The market price of Zalicus common stock after the merger may be affected by factors different from those currently affecting the financial condition, results of operations and business of Zalicus.

Upon completion of the merger, holders of Epirus securities will become holders of Zalicus common stock and will acquire between 81% and 86% of the outstanding shares of common stock. The business of Zalicus differs from the Epirus business in important respects and, accordingly, the results of operations and the market price of Zalicus common stock following the merger may be significantly different from those factors currently affecting the independent results of operations of Zalicus. For a discussion of the businesses of Zalicus and Epirus and of certain factors to consider in connection with those businesses, see the sections entitled “Zalicus’ Business,” “Epirus’ Business” as well as the risks described elsewhere in “Risk Factors” and throughout this joint proxy statement/prospectus.

Failure to retain key employees could diminish the anticipated benefits of the merger.

The success of the merger will depend in part on the retention of personnel critical to our business and operations, including certain employees of Epirus who become employees of Zalicus upon completion of the merger. Key employees may depart following the merger because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with Zalicus following the merger. Accordingly, no assurance can be given that Zalicus will be able to retain key employees, including certain employees of Epirus who become employees of Zalicus upon completion of the merger.

 

27


Table of Contents

The termination fee and restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire Zalicus or Epirus.

Until the completion of the merger, with certain exceptions, the merger agreement prohibits both Zalicus and Epirus from entering into or soliciting any acquisition proposal or offer for a merger or other business combination with any other party. However, both Zalicus and Epirus may engage in discussions with certain third parties making unsolicited offers to acquire the company in compliance with the provisions of the merger agreement. The merger agreement provides each of Zalicus and Epirus with specified termination rights. If the merger agreement is terminated to accept a superior acquisition proposal or under other circumstances specified in the merger agreement, Zalicus will be required to pay to Epirus a termination fee of $1.1 million or Epirus will be required to pay to Zalicus a termination fee of $2.5 million, as the case may be. These provisions could discourage other companies from trying to acquire Zalicus or Epirus even though those other companies might be willing to offer greater value to the stockholders of Zalicus or Epirus.

Failure to complete the merger could adversely affect the price of Zalicus common stock and Zalicus’ and Epirus’ future business and operations.

The merger is subject to the satisfaction of various closing conditions, including the approval by both Zalicus and Epirus stockholders of various proposals related to the merger, including the Merger Proposals, as applicable, and neither Zalicus nor Epirus can guarantee that the merger will be successfully completed. In the event that the merger is not consummated for any reason, Zalicus and Epirus will be subject to many risks, including the costs related to the merger, such as legal, accounting and advisory fees, which must be paid even if the merger is not completed, and, potentially, the payment of a termination fee by either Zalicus or Epirus under certain circumstances. If the merger is not consummated, the market price of Zalicus common stock could decline. Zalicus and Epirus also could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against Zalicus or Epirus to perform their respective obligations under the merger agreement. Finally, if the merger agreement is terminated, Zalicus or Epirus may be unable to find another party willing to engage in a similar transaction on terms as favorable as those set forth in the merger agreement, or at all. This could limit each company’s ability to pursue its strategic goals in the event the merger is not consummated.

The rights of holders of Epirus capital stock will change as a result of the merger.

After the merger, the rights of those stockholders of Epirus who will become Zalicus stockholders will be governed by Zalicus’ sixth amended and restated certificate of incorporation and Zalicus’ amended and restated bylaws, which are different from Epirus’ amended and restated certificate of incorporation, and its amended and restated bylaws. More specifically, as compared to the common stockholders of Epirus, Epirus’ preferred stockholders are entitled to greater rights and preferences in respect of their equity ownership in Epirus. These rights and preferences include, in some cases, the right to representation on the board of directors of Epirus, the right to vote upon certain transactions and matters contemplated by Epirus and liquidation preferences, as well as various additional rights and preferences. Because only shares of Zalicus common stock will be issued to Epirus stockholders in connection with the merger, persons receiving such shares will not be entitled to any greater rights and preferences than are all other stockholders of Zalicus. For more information, see “Comparison of Rights of Holders of Zalicus Common Stock and Epirus Capital Stock,” beginning on page 211.

Some of Zalicus’ and Epirus’ officers and directors have interests that may be different from yours and may influence them to support or approve the merger and the issuance of shares of Zalicus common stock in the merger.

Certain or all officers and directors of Zalicus participate in arrangements that provide them with interests in the merger that are different from yours, including in some cases, their continued service as a director of the combined company, retention and severance benefits under the terms of their existing employment agreements, acceleration of vesting or preferential treatment with respect to equity awards held by executive officers and continued indemnification of directors and officers. These interests, among others, may influence the officers and

 

28


Table of Contents

directors of Zalicus to support or approve the merger and the issuance of shares of Zalicus common stock in the merger. For a more detailed discussion see “Questions and Answers About the Merger,” “The Merger—Interests of Zalicus’ Executive Officers and Directors in the Merger” and “The Merger—Interests of Epirus’ Executive Officers and Directors in the Merger” beginning on pages 3, 81 and 93, respectively.

Because the lack of a public market for Epirus capital stock makes it more difficult to evaluate the fairness of the merger, Epirus’ stockholders may receive consideration in the merger that is greater than or less than the actual fair value of the Epirus capital stock.

The outstanding capital stock of Epirus is privately held and is not traded in any public market. The lack of a public market makes it difficult to determine the fair value of Epirus. Because the percentage of Zalicus equity to be issued to Epirus stockholders was determined based on negotiations between the parties to the merger agreement, it is possible that the value of the Zalicus shares to be issued to Epirus stockholders in connection with the merger will be greater than the fair value of Epirus. Alternatively, it is possible that the value of the Zalicus shares to be issued in connection with the merger will be less than the fair value of Epirus.

The merger may fail to qualify as a reorganization for U.S. federal income tax purposes, resulting in recognition of taxable gain or loss by Epirus stockholders in respect of their Epirus common stock or Epirus preferred stock.

Zalicus and Epirus intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended as described in “The Merger—Material United States Federal Income Tax Consequences of the Merger.” However, if the merger fails to qualify as a reorganization, each Epirus stockholder generally will be treated as exchanging his, her or its Epirus common stock or Epirus preferred stock in a fully taxable transaction for the merger consideration.

The historical audited and unaudited pro forma condensed combined financial information may not be representative of our results after the merger.

The historical audited and unaudited pro forma condensed combined financial information included elsewhere in this joint proxy statement/prospectus has been presented for informational purposes only and is not necessarily indicative of the financial position or results of operations that actually would have occurred had the merger been completed as of the date indicated, nor is it indicative of future operating results or financial position.

Risks Related to the Business of Zalicus Before the Merger

Zalicus’ approach to the discovery and clinical development of drugs is unproven and may never lead to commercially viable products.

Zalicus’ various approaches to drug discovery and development using our ion channel expertise is complex and unproven. Previously unrecognized or unexpected defects in or limitations to Zalicus’ drug discovery technologies or drug development strategies may emerge, which Zalicus may also be unable to overcome or mitigate. None of the product candidates identified or developed to date through the application of Zalicus’ business model and drug discovery technologies has been effective in Phase 2 clinical trials, been approved by any regulatory agency for commercial sale or been commercialized.

All of Zalicus’ product candidates are in an early stage of development and their risk of failure is high. The data supporting Zalicus’ drug discovery and development programs, including the product candidate Z944, is derived from either laboratory and pre-clinical studies and limited early stage clinical trials that were not designed to be statistically significant. Zalicus cannot predict when or if any one of Zalicus’ product candidates will prove effective or safe in humans or will receive regulatory approval. If Zalicus is unable to discover or successfully develop drugs that are effective and safe in humans, Zalicus will not have a viable business.

 

29


Table of Contents

Zalicus’ future success depends on the successful development of product candidates, such as Z944, identified by Zalicus’ ion channel drug discovery technology. The scientific evidence to support the feasibility of developing drugs that modulate ion channels to treat pain conditions is limited, and many companies with more resources than Zalicus have not been able to successfully develop drugs that modulate ion channels to treat pain conditions.

For these and other reasons, Zalicus’ approach to drug discovery and development may not be successful and Zalicus’ current business model may not generate viable products or revenue. Even if Zalicus’ approach is theoretically viable, Zalicus may not complete the significant research and development or obtain the financial resources and personnel required to further develop and apply Zalicus’ discovery technology, advance promising product candidates into and through clinical trials, and obtain the regulatory approvals required for commercialization around the world.

Zalicus depends almost entirely on the success of one product candidate, Z944. Zalicus cannot be certain that Zalicus will be able to obtain regulatory approval for, or successfully commercialize, Z944 or any of Zalicus’ other product candidates.

Zalicus currently has only one product candidate, Z944, in clinical development, and Zalicus’ business depends almost entirely on its successful clinical development, regulatory approval and commercialization. Zalicus currently has no drug products for sale and may never be able to develop marketable drug products. Despite successful results from a phase 1 clinical study to evaluate multiple modified-release formulations of Z944 in the second quarter of 2014, Z944 will require substantial additional clinical development, testing, and regulatory approval before Zalicus is permitted to commence its commercialization. Zalicus’ other product candidates are still in pre-clinical development stages. None of Zalicus’ product candidates have advanced into a pivotal study, and it may be years before such a study is initiated, if ever. The clinical trials of Zalicus’ product candidates are, and the manufacturing and marketing of Zalicus’ product candidates will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States and in other countries where Zalicus intends to test and, if approved, market any product candidate. Before obtaining regulatory approvals for the commercial sale of any product candidate, Zalicus must successfully meet a number of critical developmental milestones, including:

 

    demonstrating through clinical trials that the product candidate is safe and effective in patients for the intended indication;

 

    developing dosages that will be tolerated, safe and effective;

 

    determining the appropriate delivery mechanism;

 

    demonstrating that the product candidate formulation will be stable for commercially reasonable time periods; and

 

    completing the development and scale-up to permit manufacture of our product candidates in commercial quantities and at acceptable prices.

The time necessary to achieve these developmental milestones for any individual product candidate is long and uncertain, and Zalicus may not successfully complete these milestones for Z944 or any other product candidates that we may develop. Zalicus has not yet completed development of any product. Zalicus may not be able to finalize the design or formulation of any product candidate. In addition, Zalicus may select components, solvents, excipients or other ingredients to include in Zalicus’ product candidates that have not been previously approved for use in pharmaceutical products, which may require Zalicus to perform additional studies and may delay clinical testing and regulatory approval of Zalicus’ product candidates.

Zalicus is continuing to test and develop Zalicus’ product candidates and may explore possible design or formulation changes to address safety, efficacy, manufacturing efficiency and performance issues. Zalicus may not be able to complete development of any product candidates that will be safe and effective and that will have a commercially reasonable treatment and storage period. If Zalicus is unable to complete development of Z944, or any other product candidates that Zalicus may develop, Zalicus will not be able to commercialize and earn revenue from them.

 

30


Table of Contents

Negative or inconclusive results from Zalicus’ product candidates may adversely affect Zalicus’ business and financial prospects.

Zalicus is planning to advance clinical development of Zalicus’ most advanced product candidate Z944 in a Phase 2 clinical study. Positive results from Zalicus’ prior preclinical assessments of Z944 and Phase 1b clinical trials of Z944 may not necessarily be predictive of the results from future Phase 2 clinical trials of Z944. Many companies in the pharmaceutical and biotechnology industries, including Zalicus, have suffered significant setbacks in clinical trials after achieving positive results in early stage development, and Zalicus cannot be certain that Zalicus will not face similar setbacks. These setbacks have been caused by, among other things, failure to achieve clinical trial endpoints with statistical significance or at all due to greater than expected placebo effects, insufficient statistical powering of clinical trials, selection of incorrect dosages of a product candidate to study, or selection of inappropriate indications or patient populations to study. Moreover, pre-clinical and clinical data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in pre-clinical studies and clinical trials nonetheless failed to obtain FDA approval for those product candidates. If Zalicus fails to produce positive results in Zalicus’ planned clinical trials of Z944, the development timeline and regulatory approval and commercialization prospects for Zalicus’ most advanced product candidate, and, correspondingly, Zalicus’ business and financial prospects, may be materially adversely affected.

Zalicus may not be able to initiate and complete clinical trials for our product candidates.

Conducting clinical studies for any of Zalicus’ product candidates requires finding appropriate clinical sites and clinical investigators, securing approvals for such studies from the independent review board at each such site and local regulatory authorities and enrolling sufficient numbers of patients on a timely basis. Zalicus may not be able to arrange for appropriate clinical trials for Zalicus’ product candidates, secure the necessary approvals or enroll the necessary number of participants on a timely basis. Zalicus cannot guarantee that outside clinical investigators conducting clinical trials will conduct them in compliance with applicable United States or foreign regulations or the relevant clinical trial protocol. Clinical sites may fail the FDA’s or other regulatory agencies’ inspections or reviews, and Zalicus’ trials could be halted for these or other reasons. Zalicus contracts with third-party clinical research organizations and other parties to conduct virtually all aspects of Zalicus’ Phase 2 and other Phase 1 clinical trials for Zalicus’ product candidates, including Z944. These organizations may not adequately or completely perform their contractual obligations regarding the clinical trials, or may not diligently or completely perform their tasks with respect to clinical trials under their supervision. As a result of these risks, Zalicus’ clinical trials may be extended, delayed or terminated, which could delay the receipt of clinical results for Zalicus’ product candidates, which could delay, impede or stop the development, regulatory approval or successful commercialization of Zalicus’ product candidates.

Zalicus may not be able to create commercially viable pharmaceutical formulations of Zalicus’ product candidates.

Zalicus has developed or is developing proprietary formulations of Zalicus’ product candidate Z944. Developing such proprietary formulations is costly and difficult, and Zalicus has limited experience in developing formulations on its own. Zalicus is relying on and expects to rely on third-party suppliers to develop and test the pharmaceutical formulations of Zalicus’ product candidates as well as manufacture materials for clinical trials of Zalicus’ product candidates. These third parties may not be successful in developing or manufacturing these novel formulations of Zalicus’ product candidates or may experience delays in doing so that could delay clinical trials, and ultimately Zalicus’ ability to obtain approval of Zalicus’ product candidates, including Zalicus’ product candidate and Z944. Defects in the formulation, delivery method or packaging of any of Zalicus’ product candidates could delay Zalicus’ ability to conduct clinical trials or require Zalicus to repeat clinical trials using a revised formulation, delivery method or packaging. If Zalicus is unsuccessful in creating commercially viable formulations, delivery methods or packaging, Zalicus may never generate product revenue or be profitable.

 

31


Table of Contents

Zalicus may be unable to find safe and effective doses for Zalicus’ product candidates without extensive clinical trials and substantial additional costs, if at all.

Zalicus must select the doses, including the amount, frequency and duration, of the active pharmaceutical ingredients included in Zalicus’ product candidates. Zalicus’ clinical trials in humans may show that the doses Zalicus selects based on Zalicus’ in vitro screening, animal testing or early clinical trials do not achieve the desired therapeutic effect in humans, or achieve this effect only in a small part of the population. Even if the doses Zalicus selects show efficacy in humans, the resulting doses of active pharmaceutical ingredients may not have acceptable safety profiles for targeted indications. Furthermore, even if Zalicus believes that pre-clinical and clinical studies adequately demonstrate that the doses it selects for Zalicus’ product candidates are safe and effective in humans, the FDA or other regulatory agencies in foreign jurisdictions may conclude that the clinical trials do not support this conclusion. Zalicus may be required to conduct additional clinical studies and provide more evidence substantiating the safety and effectiveness of the doses selected in a significant patient population. If Zalicus needs to adjust the doses of Zalicus’ product candidates, Zalicus may need to conduct additional clinical trials. Zalicus may also be required to make different doses available for different types of patients. All of this may result in significant delays and additional costs or prevent commercialization of Zalicus’ product candidates.

A material component of Zalicus’ business strategy is to establish and maintain collaborative relationships to fund research, development and commercialization of product candidates by Zalicus or by Zalicus’ collaborators. If Zalicus or any collaborator terminates or fails to perform any obligations under Zalicus’ collaboration agreements, the development and commercialization of product candidates under these agreements could be delayed or terminated.

A material component of Zalicus’ business strategy is to establish and maintain collaborative arrangements with pharmaceutical and biotechnology companies and to fund research development and commercialization of drug products for the treatment of diseases. Zalicus has established collaborative royalty and milestone-based agreements with Sanofi for Prednisporin and funded discovery research agreements with Novartis and others. If any of Zalicus’ product candidates continue to advance through preclinical or clinical development, Zalicus intends to continue to seek collaborative relationships to obtain discovery or clinical development funding and expertise, as well as domestic or international sales, marketing and distribution capabilities.

The process of establishing collaborative relationships is difficult, time-consuming and involves significant uncertainty. Moreover, it may be difficult to maintain or perform under collaboration arrangements, as Zalicus’ funding resources may be limited or Zalicus’ collaborators may seek to renegotiate or terminate their relationships due to unsatisfactory research or clinical results, changes in the competitive landscape for a particular therapeutic area, a change in business strategy, a change of control or other reasons.

If Zalicus or any collaborator fails to fulfill any responsibilities in a timely manner, or at all, Zalicus’ research, clinical development or commercialization efforts related to that collaboration could be delayed or terminated. Additionally it may become necessary for Zalicus to assume responsibility for activities that would otherwise have been the responsibility of Zalicus’ collaborator. Further, if Zalicus is unable to establish and maintain collaborative relationships on acceptable terms, Zalicus may have to delay or discontinue further development of one or more of Zalicus’ product candidates, undertake development and commercialization activities at Zalicus’ own expense or find alternative sources of funding.

Zalicus’ collaborations typically involve a complex allocation of responsibilities, costs and benefits and provide for milestone payments to Zalicus upon the achievement of specified clinical and regulatory milestones. Zalicus’ collaborations also may provide Zalicus with royalty-based revenue if product candidates are successfully commercialized. Under the Sanofi, Novartis and other collaborations, Zalicus will rely on Zalicus’ collaborators to provide resources to develop new product candidates and to potentially achieve these milestones and commercialize any new products. Zalicus may not be able to achieve any of the milestones provided in the Novartis, Sanofi or other collaboration agreements or derive any license or royalty revenue with respect to Zalicus’ collaborations.

 

 

32


Table of Contents

Zalicus has no sales or distribution capabilities and may not obtain the collaboration, development, commercialization, manufacturing or other third-party relationships required to develop, commercialize and manufacture some or all of Zalicus’ product candidates.

Zalicus has no sales or distribution capabilities and lacks many of the internal resources, capabilities and experience necessary to clinically develop, formulate, manufacture, test, market and sell pharmaceuticals. As a result, to succeed in Zalicus’ business plan, Zalicus will be dependent on the efforts of third parties. Zalicus depends on collaborators, licensees, clinical research organizations and other third parties to formulate product candidates and to conduct clinical trials for all of our product candidates. Zalicus also relies on third-party manufacturers to manufacture all clinical trial supplies of Zalicus’ product candidates.

Zalicus’ third-party manufacturers may encounter difficulties performing their obligations in a timely manner and in accordance with applicable governmental regulations, including problems involving: inconsistent production yields; poor quality control and assurance or inadequate process controls; and lack of compliance with regulations set forth by the FDA or other foreign regulatory agencies. Zalicus typically engages only a single contract manufacturer to make any product candidate which can exacerbate the impact of any such difficulties.

Zalicus expects to be able to develop and commercialize many of Zalicus’ product candidates only with the participation of pharmaceutical or biotechnology company collaborators or by out-licensing rights to the product candidates. Pharmaceutical and biotechnology companies and others may be reluctant to collaborate with Zalicus or to license rights to Zalicus’ product candidates due to the unproven nature of Zalicus’ drug discovery and development approach, concerns regarding the pricing of and reimbursement for Zalicus’ product candidates if they are successfully developed, or other factors.

Zalicus cannot guarantee that Zalicus will be able to successfully negotiate agreements for relationships with collaborators, partners, licensees, clinical investigators, manufacturers and other third parties on favorable terms, if at all. If Zalicus is unable to obtain these agreements, Zalicus may not be able to clinically develop, formulate, manufacture, test, obtain regulatory approvals for or commercialize Zalicus’ product candidates. Zalicus expects to expend substantial funds and management time and effort to enter into relationships with these third parties and, if Zalicus successfully enters into such relationships, to manage these relationships. However, Zalicus cannot control the amount or timing of resources Zalicus’ contract partners will devote to Zalicus’ research and development programs, product candidates or potential product candidates, and Zalicus cannot guarantee that these parties will succeed in a timely fashion, if at all.

Zalicus may not be able to gain market acceptance of Zalicus’ product candidates, which would prevent Zalicus from becoming profitable.

Zalicus cannot be certain that any of Zalicus’ product candidates, if approved, will gain market acceptance among physicians, patients, healthcare payors, pharmaceutical companies or others. Demonstrating the safety and efficacy of Zalicus’ product candidates and obtaining regulatory approvals will not guarantee future revenue. Sales of medical products largely depend on the reimbursement of patients’ medical expenses by government healthcare programs and private health insurers. Governments and private insurers closely examine medical products to determine whether they should be covered by reimbursement and if so, the level of reimbursement that will apply. Zalicus cannot be certain that third-party payors will sufficiently reimburse sales of Zalicus’ products, or enable Zalicus to sell Zalicus’ products, if approved, at profitable prices. Sales of medical products also depend on physicians’ willingness to prescribe the treatment, which is likely to be based on a determination by these physicians that the products are safe, therapeutically effective and cost-effective. Zalicus cannot predict whether physicians, other healthcare providers, government agencies or private insurers will determine Zalicus’ products are safe, therapeutically effective and cost effective relative to competing treatments.

 

33


Table of Contents

Disputes under key agreements could delay or prevent development or commercialization of Zalicus’ product candidates.

Any agreements Zalicus has or may enter into with third parties, such as collaboration, license, formulation supplier, manufacturing, testing, clinical research organization or clinical trial agreements, may give rise to disputes regarding the rights and obligations of the parties to such agreements. Disagreements could develop over rights to ownership or use of intellectual property, the scope and direction of research and development, the approach for regulatory approvals or commercialization strategy. Zalicus intends to conduct research programs in a range of therapeutic areas, but Zalicus’ pursuit of these opportunities could result in conflicts with the other parties to these agreements who may be developing or selling pharmaceuticals or conducting other activities in these same therapeutic areas. Any disputes or commercial conflicts could lead to the termination of these agreements, delay progress of Zalicus’ product development programs, compromise Zalicus’ ability to renew agreements or obtain future agreements, lead to the loss of intellectual property rights or result in costly litigation.

Risks Relating to the Business of the Combined Company following the Merger

If an improved version of a reference product, such as Remicade is developed, or if the market for a reference product significantly declines, sales or potential sales of our biosimilar product candidates may suffer.

We are developing and commercializing follow-on versions of approved, reference biological products. Such follow-on products are known as biosimilars. Innovator companies may develop improved versions of a reference product as part of a life cycle extension strategy, and may obtain regulatory approval of the improved version under a new or supplemental application filed with the applicable regulatory authority. Should the innovator company succeed in obtaining an approval of an improved biologic product, it may capture a significant share of the collective reference product market in the applicable jurisdiction and significantly reduce the market for the reference product and thereby the potential size of the market for our product candidates. In addition, the improved product may be protected by additional patent rights and thereby subject our follow-on biosimilar to claims of infringement.

Additionally, competition in the biotechnology industry is intense. Reference biologic products face competition on numerous fronts as technological advances are made that may offer patients a more convenient form of administration or increased efficacy, or as new products are introduced. As new products are approved that compete with the reference products to our biosimilar product candidates, such as Remicade, or our pipeline products, such as Humira, sales of the reference biologic products may be significantly and adversely impacted and may render the reference product obsolete. If the market for the reference product is impacted, we in turn may lose significant market share or market potential for our biosimilar products and product candidates, and the value for our product pipeline could be negatively impacted. As a result of the above factors, our business, prospects and financial condition could suffer.

The pharmaceutical and biosimilar product candidates, if approved, will face significant competition from the reference products and from other pharmaceuticals approved for the same indication as the reference biologic products. Our failure to effectively compete may prevent us from achieving significant market penetration and expansion.

We expect to enter highly competitive pharmaceutical and biotechnology markets. Successful competitors in the pharmaceutical market have the ability to effectively discover, obtain patents, develop, test and obtain regulatory approvals for products, as well as the ability to effectively commercialize, market and promote approved products, including communicating the effectiveness, safety and value of products to actual and prospective customers and medical staff. Numerous companies, universities, and other research institutions are engaged in developing, patenting, manufacturing and marketing of products competitive with those that we are developing. Many of these potential competitors, such as Celltrion and Hospira, Inc., are large, experienced companies that enjoy significant competitive advantages, such as substantially greater financial, research and

 

34


Table of Contents

development, manufacturing, personnel and marketing resources, greater brand recognition and more experience and expertise in undertaking preclinical testing and clinical trials of product candidates, and obtaining regulatory approvals of products.

Use of our product candidates could be associated with side effects or adverse events.

As with most pharmaceutical and biological drug products, use of our product candidates could be associated with side effects or adverse events which can vary in severity (from minor reactions to death) and frequency (infrequent or prevalent). Side effects or adverse events associated with the use of our product candidates or those of our collaborators may be observed at any time, including in clinical trials or when a product is commercialized, and any such side effects or adverse events may negatively affect our ability to obtain regulatory approval or market our product candidates. Side effects such as toxicity or other safety issues associated with the use of our product candidates could require us or our collaborators to perform additional studies or halt development or sale of these product candidates or expose us to product liability lawsuits which will harm our business. We may be required by regulatory agencies to conduct additional animal or human studies regarding the safety and efficacy of our pharmaceutical product candidates which we have not planned or anticipated. There can be no assurance that we will resolve any issues related to any product related adverse events to the satisfaction of any regulatory agency in a jurisdiction where we are seeking to commercialize our products in a timely manner or ever, which could harm our business, prospects and financial condition.

In addition, if we are successful in commercializing the most advanced biosimilar in our pipeline, BOW015, or any other of our pipeline product candidates, then regulatory agency regulations may require that we report certain information about adverse medical events according to timelines that may vary from jurisdiction to jurisdiction. The timing of our obligation to report may be triggered by the date we become aware of the adverse event as well as the nature of the event. We may fail to report adverse events we become aware of within the prescribed timeframe. We may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we fail to comply with our reporting obligations, regulatory agencies could take action including criminal prosecution, the imposition of civil monetary penalties, seizure of our products, or delay in approval of future products.

If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop BOW015, or any of our pipeline product candidates, conduct our clinical trials and commercialize BOW015, or any future pipeline product candidates we develop.

Our success depends in part on our continued ability to attract, retain and motivate highly qualified management, clinical and scientific personnel. We believe that our future success is highly dependent upon the contributions of our senior management, particularly our chief executive officer, chief financial officer, senior vice president of clinical, regulatory and manufacturing, vice president of program management, and vice president of manufacturing and quality, as well as our senior scientists and other members of our senior management team. The loss of services of any of these individuals could delay or prevent the successful development of our product pipeline, completion of our planned clinical trials or the commercialization of BOW015, or any future products we develop.

Although we have not historically experienced significant difficulties attracting and retaining qualified employees, we could experience such problems in the future. For example, competition for qualified personnel in the biotechnology and pharmaceuticals field is intense due to the limited number of individuals who possess the skills and experience required by our industry. We will need to hire additional personnel as we expand our clinical development and commercial activities. We may not be able to attract and retain quality personnel on acceptable terms, or at all.

 

 

35


Table of Contents

We expect to enter into alliances with other companies that can provide capabilities and funds for the development and commercialization of our product candidates, as well as local market access in jurisdictions where we intend to pursue our In Market, For Market commercialization strategy. If we are unsuccessful in forming or maintaining these alliances on favorable terms, or if such alliances do not prove to be as successful as we anticipate, our business could be adversely affected.

Our In Market, For Market strategy for development and commercialization of our biosimilar product candidates in key emerging markets is based on the assumption that we will enter into collaborative relationships with local entities to facilitate our access to and penetration into such markets. We also have limited or no capabilities for independent manufacturing, sales, marketing and distribution. For example, we have entered into a binding term sheet with Livzon, for the development and commercialization, using our In Market, For Market strategy, of BOW015 and other pipeline biosimilar products to be agreed with Livzon in China. We retain global rights to commercialize BOW015 and the other pipeline biosimilar products outside of China, subject to our other agreements with third parties. In the future, we expect to form alliances with other companies that are based in our target markets and that have expertise in development, manufacture and commercialization of biologics and biosimilar products in our target markets to enable us to expand the commercialization opportunities for our product candidates. In such alliances, we would expect our partners to provide substantial capabilities in clinical development, manufacturing, regulatory affairs, sales and marketing. We may not be successful in entering into any such alliances. Even if we do succeed in securing such alliances, we may not be able to maintain them if, for example, development or approval of a product candidate is delayed or sales of an approved product are disappointing. If we are unable to secure or maintain such alliances we may not have the capabilities necessary to continue or complete development of our product candidates and bring them to market, which may have an adverse effect on our business.

In addition to product development and commercialization capabilities, we may depend on our alliances with other companies to provide substantial additional funding for development and potential commercialization of our product candidates. We may not be able to obtain funding on favorable terms from these alliances, and if we are not successful in doing so, we may not have sufficient funds to develop a particular product candidate internally, or to bring product candidates to market. Failure to bring our product candidates to market will prevent us from generating sales revenue, and this may substantially harm our business. Furthermore, any delay in entering into these alliances could delay the development and commercialization of our product candidates and reduce their competitiveness even if they reach the market. As a result, our business may be adversely affected.

Our employees, independent contractors, principal investigators, CROs, consultants and collaborators may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements and insider trading.

We are exposed to the risk that our employees, independent contractors, consultants and collaborators may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or unauthorized activities that violate: (1) regulations of regulatory authorities in jurisdictions where we are performing activities in relation to our product candidates, including those laws requiring the reporting of true, complete and accurate information to such authorities; (2) manufacturing regulations and standards; (3) fraud and abuse and anti-corruption laws and regulations; or (4) laws that require the reporting of true and accurate financial information and data. In particular, sales, marketing and business arrangements in healthcare industry are subject to extensive laws and regulations intended to prevent fraud, bias, misconduct, kickbacks, self-dealing and other abusive practices, and these laws may differ substantially from country to country. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. These activities also include the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. While Zalicus currently has in place a Corporate Code of Ethics and Conduct, it is not always possible to identify and deter misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or

 

36


Table of Contents

lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in subsidized healthcare programs in a given country, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.

Failure to comply with the Foreign Corrupt Practices Act, or FCPA, and other similar anti-corruption laws could subject us to significant penalties and damage our reputation.

We are subject to the FCPA, which generally prohibits U.S. companies and intermediaries acting on their behalf from offering or making corrupt payments to “foreign officials” for the purpose of obtaining or retaining business or securing an improper business advantage. The FCPA also requires companies whose securities are publicly listed in the United States to maintain accurate books and records and to maintain adequate internal accounting controls. Certain of the jurisdictions in which we expect to conduct business have heightened risks for public corruption, extortion, bribery, pay-offs, theft and other fraudulent practices. In addition, our business outside of the United States often is heavily regulated and therefore involves significant interactions with “foreign officials.” In many countries outside of the United States, health care professionals who serve as investigators in our clinical studies, or prescribe or purchase our commercialized products are employed by a government or an entity owned or controlled by a government. Dealings with these investigators, prescribers and purchasers are subject to regulation under the FCPA. We rely on local and strategic business partners to produce and commercialize our products in certain markets outside of the United States, and we rely on distributors and other intermediaries to sell and distribute our products internationally. If we, or our business partners or intermediaries, fail to comply with the requirements of the FCPA, or similar laws of other countries, governmental authorities in the United States or elsewhere, as applicable, could seek to impose civil and/or criminal penalties, which could damage our reputation and have a material adverse effect on our business, financial condition, and results of operations.

Risks Relating to our Reliance on Third Parties

We rely on third parties to conduct and oversee our clinical trials for our biosimilar product candidates, and expect to continue to do so as we progress the development of our pipeline product candidates. If these third parties do not successfully carry out their contractual duties, meet expected deadlines, or otherwise conduct the trials as required or comply with regulatory requirements, we may not be able to obtain regulatory approval for or commercialize our product candidates when expected or at all, and our business could be substantially harmed.

We have relied upon and continue to rely upon third-party contract research organizations, or CROs, to monitor and manage the clinical sites and investigators for our ongoing clinical programs, and to audit and verify the data produced by these parties. We also rely upon medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and in accordance with applicable legal and regulatory requirements. These third parties play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. These third parties are not our employees, and except for remedies available to us under our agreements with such third parties, there is no guarantee that any such third party will devote adequate time and resources to our clinical trial. If any CROs engaged by us or any other third parties upon which we rely for administration and conduct of our clinical trials do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols, regulatory requirements, or for other reasons, or if they otherwise perform in a substandard manner, our clinical trials may be extended, delayed, suspended or terminated, and we may not be able to complete development of, obtain regulatory approval for, or successfully commercialize our product candidates. We plan

 

37


Table of Contents

to rely heavily on these third parties for the execution of our planned Phase 3 clinical trial of BOW015 in Europe and for other clinical trials for products we are developing or may develop in the future, and will control only certain aspects of their activities. Nevertheless, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on our CROs does not relieve us of our regulatory responsibilities.

We and any CROs that we engage are required to comply with Good Clinical Practice, or GCP, requirements which are regulations and guidelines enforced by regulatory authorities around the world for products in clinical development. Regulatory authorities enforce these GCP regulations through periodic inspections of clinical trial sponsors, principal investigators and clinical trial sites. If we or any of our CROs fail to comply with applicable GCP regulations, the clinical data generated in our clinical trials may be deemed unreliable and our submission of marketing applications may be delayed or the regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. We cannot provide any assurance that, upon inspection, a regulatory authority will determine that any of our clinical trials comply or complied with applicable GCP regulations. In addition, our clinical trials must be conducted with product produced under current Good Manufacturing Practices, or cGMP, regulations. Our failure to comply with these regulations may require us to repeat clinical trials, which would delay the regulatory approval process.

Phase 3 clinical trials, such as that planned for BOW015 in Europe, require a substantial number of patients that can allow statistically significant results. Delays in site initiation or unexpectedly low patient recruitment rates may delay the results of the clinical trial. CROs may also generate higher costs than anticipated. As a result, our results of operations and the commercial prospects for our product candidates would be harmed, our costs could increase, and our ability to generate revenue could be delayed. Further, if our relationship with any CRO that we engage to perform services on our behalf is terminated, we may be unable to enter into arrangements with an alternative CRO on commercially reasonable terms, or at all. Switching or adding CROs can involve substantial cost and require extensive management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays may occur, which can materially impact our ability to meet our desired clinical development timelines. Though we carefully manage our relationship with our CROs, there can be no assurance that we will not encounter such challenges or delays in the future or that these delays or challenges will not have a material adverse impact on our business, prospects, financial condition or results of operations.

We rely on third parties, and in some cases a single third-party, to manufacture preclinical and clinical supplies of our product candidates and to store critical components of our product candidates for us. Our business could be harmed if those third parties fail to provide us with sufficient quantities of product candidates, or fail to do so at acceptable quality levels or prices.

We do not have the infrastructure or capability internally to manufacture supplies of our biosimilar product candidates for use in the conduct of our preclinical and clinical studies, and we lack the resources and the capability to manufacture any of our product candidates on a clinical or commercial scale, and we do not intend to establish such independent manufacturing capacity in the future. We rely on third party manufacturers, including our Indian-based contract manufacturer, Reliance Life Sciences, or RLS, to manufacture and supply us with our biosimilar candidate BOW015 for our preclinical and clinical studies, and for commercialization by our partner Ranbaxy in India and certain North African and Asian countries. We also have an agreement with Fujifilm Diosynth Biotechnologies U.S.A., Inc. for clinical and commercial supply of BOW015 and for process development with a view to future clinical and commercial supply of our pipeline product candidates. Developing successful scale up techniques for manufacture of our biosimilar product candidates for commercial quantities will be time consuming and may not yield the quantities of product that we anticipate, which may have a material impact on our ability to successfully commercialize our product candidates. Moreover, the market for contract manufacturing services for protein therapeutics is highly cyclical, with periods of relatively abundant capacity alternating with periods in which there is little available capacity. If any need we have for contract manufacturing services increases during a period of industry-wide production capacity, we may not be able to

 

38


Table of Contents

produce our product candidates on a timely basis or on commercially viable terms. Although we generally do not begin a clinical study unless we believe we have a sufficient supply of a product candidate to complete such study, any significant delay or discontinuity in the supply of a product candidate for an ongoing clinical study due to the need to replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing, and potential regulatory approval of our product candidates, which could harm our business and results of operations.

Reliance on third party manufacturers entails additional risks, including reliance on the third party for regulatory compliance and quality assurance, the possible breach of the manufacturing agreement by the third party, and the possible termination or nonrenewal of the agreement by the third party at a time that is costly or inconvenient for us. In addition, third party manufacturers may not be able to comply with applicable good manufacturing practice requirements or similar regulatory requirements applicable at their facilities in countries outside the United States and Europe. Our failure, or the failure of our third party manufacturers, to comply with applicable regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect supplies of our product candidates or any other product candidates or products that we may develop. Any failure or refusal to supply the components for our product candidates that we may develop could delay, prevent or impair our clinical development or commercialization efforts. Although we endeavor, and will continue to do so in the future, to establish alternative sources of supply for BOW015 and our future product candidates in order to protect against any disruption in product supply, we cannot assure you that we will be able to find a suitable alternative manufacturer who is permitted to supply product under applicable regulatory laws, or to enter into appropriate agreements with such third parties on commercially reasonable terms, or at all. If our contract manufacturers were to breach or terminate their manufacturing arrangements with us, the development or commercialization of the affected products or product candidates could be delayed, which could have an adverse effect on our business. Any change in our manufacturers could be costly because the commercial terms of any new arrangement could be less favorable and because the expenses relating to the transfer of necessary technology and processes could be significant.

If any of our product candidates are approved, in order to produce the quantities necessary to meet anticipated market demand, any contract manufacturer that we engage may need to increase manufacturing capacity. If we are unable to produce our product candidates in sufficient quantities to meet the requirements for the launch of these products or to meet future demand, our revenue and gross margins could be adversely affected. Although we believe that we will not have any material supply issues, we cannot be certain that we will be able to obtain long-term supply arrangements for our product candidates or materials used to produce them on acceptable terms, if at all. If we are unable to arrange for third-party manufacturing, or to do so on commercially reasonable terms, we may not be able to complete development of our products or market them.

We also rely on third parties to store the BOW015 master and working cell bank, and those of our pipeline product candidates. We have one master cell bank and one working cell bank and believe we would have adequate backup should any cell bank be lost in a catastrophic event. However, it is possible that we could lose multiple cell banks and have our manufacturing severely impacted by the need to replace the cell banks, which could materially and adversely affect our business, financial condition and results of operations.

 

39


Table of Contents

Where we apply our In Market, For Market strategy for commercialization of our product candidates in emerging markets, we expect to transfer our cell lines and certain proprietary manufacturing technology to our third party partners in order to permit locally-based manufacture by our partners of our biosimilar products. If our alliances with these partners terminate, our business could be harmed if such former partners continue to use our technology in such countries following termination, in breach of our agreements with them.

Under our proposed collaboration with Livzon, and under future In Market, For Market collaborations, we expect to transfer the manufacture and certain development and commercialization responsibilities for BOW015 and certain of our pipeline product candidates to Livzon and other future collaborators, along with certain of our SCALE manufacturing technology, and to provide technical assistance in such territories to assist our partners in establishing manufacturing capacity or modifying their existing manufacturing capacity for the production of our biosimilar product candidates. If our alliances with Livzon and any future partners are not successful, or our agreements with such partners are terminated, our agreements will include terms that require the partners to immediately cease any use of our technology, and to return to us any tangible embodiments of such technology, including our cell lines. However, our former partners may fail to comply with these terms, and may continue to use our technology to manufacture and sell biosimilar products in such countries, in breach of our agreements with them. In such case, we may be forced to enforce our contractual and intellectual property rights in the applicable countries, which would be time-consuming and costly, and would divert substantial management time and resources from other aspects of our business. Further, although we endeavor to include dispute resolution provisions in our agreements that are fully enforceable irrespective of the jurisdiction, including by the use of arbitration, countries outside the United States where we have In Market, For Market collaborations may not provide the same level of protection for our contractual and intellectual property rights, and there is no guarantee that we would be successful in preventing a party to whom we have transferred our technology from continuing to use our cell lines and technology to manufacture biosimilar products, in which case our business in those countries could be adversely affected.

In certain countries where we expect to commercialize our product candidates, under applicable laws, it is necessary for us to rely on locally established third parties, to act as the holder of marketing approvals or authorizations for our product candidates in such countries. Our business could be harmed if those third parties fail to comply with the terms of such marketing authorizations or approvals, or fail to act in accordance with our instructions in relation to the marketing and sale of our product candidates covered by such authorizations or approvals.

In some circumstances, it may be necessary as a matter of applicable local law, for the marketing and manufacturing approvals for our biosimilar products to be held by a third party that is not one of our affiliates. For example, our marketing approval in India for BOW015 is currently held in the name of our manufacturing partner, RLS, which also holds the manufacturing approval for BOW015. The marketing approval held by RLS for manufacture and sale of infliximab in India is based on and is specific to the data arising from our clinical trials conducted with respect to BOW015, which data is owned solely by us, and RLS therefore has no right to commercialize BOW015 in India or in any other country independently of us on the basis of such marketing authorization. Although we have a manufacturing and supply agreement in place with RLS that includes provisions that permit us to have oversight over RLS’s activities in order to protect against breach by RLS of the terms of such marketing approval, and we will seek to include equivalent contractual protections in future agreements with third parties that hold regulatory approvals on our behalf, there is no guarantee that RLS or any other such third party will comply with the terms of the marketing authorization for the applicable biosimilars or with applicable laws. Where permissible under applicable laws, we also seek to provide for transfer of rights in any regulatory approval to an alternative holder on termination of our agreements with such third parties, and we also endeavor, and will continue to do so in the future, to establish alternative sources of supply for BOW015 and our future product candidates in order to protect against any disruption in product supply. However, we cannot assure you that we will be able to find an alternative holder for any such regulatory approvals in a timely fashion, or to enter into appropriate agreements with such third parties on commercially reasonable terms, or at all. Any

 

40


Table of Contents

non-compliance with applicable laws or the terms of regulatory approvals by such third parties could result in the permission to market and sell the applicable product candidate being revoked in one or more countries, which would materially jeopardize our right to commercialize BOW015 in India and such other countries.

We expect to partner with third parties, including under our proposed collaboration with Livzon, in connection with the development of certain of our product candidates. If we do not mutually agree upon terms with our prospective partners governing such collaborations within the period for negotiation of such terms, we may not be able to proceed with the development and commercialization of our product candidates in the affected countries. Even if we do enter into such agreements, and we believe that the development of our technology and product candidates is promising, our partners may choose not to proceed with such development.

We have entered into a binding term sheet with Livzon for development and commercialization of BOW015 and up to four other biosimilar pipeline products in China and related territories. This proposed collaboration with Livzon is based on our In Market, For Market strategy, under which we would work with Livzon to establish local manufacturing capacity for the relevant product candidates. Our binding term sheet sets forth a specified period for negotiation of a definitive agreement that will formalize all of the terms of such collaboration. If we fail to mutually agree upon terms governing our prospective collaborations with Livzon within the specified negotiation period, subject to any agreed-upon extension of such period, then this term sheet will expire, and we may not be able to progress our plans to develop and commercialize our product candidates in China. Although we believe that there are appropriate alternative partners in each territory, there is no guarantee that we could identify and negotiate satisfactory terms with any such alternative partner, or that we could do so in a timeframe that would not compromise our ability to commercialize our product candidates.

Our agreements with our partners will often include the right for our partner to terminate the agreement on short notice upon the occurrence of certain circumstances. Accordingly, even if we enter into agreements with third party partners in all of the territories where we intend to pursue commercialization of our product candidates, and we believe that the development of such product candidates are worth pursuing, our partners may choose not to continue with such development. If any of our partnerships are terminated, we may be required to devote additional resources to the development of our product candidates or seek a new partner on short notice, and the terms of any additional partnerships or other arrangements that we establish may not be favorable to us, if an alternative partner is even available.

We are also at risk that our partnerships or other arrangements may not be successful. Factors that may affect the success of our partnerships include the following:

 

    our partners may incur financial and cash-flow difficulties that force them to limit or reduce their participation in our joint projects;

 

    our partners may be pursuing alternative technologies or developing alternative products that are competitive to our technology and products, either on their own or in partnership with others;

 

    our partners may terminate their partnerships with us, which could make it difficult for us to attract new partners or adversely affect perception of us in the business and financial communities; and

 

    our partners may pursue higher priority programs or change the focus of their development programs, which could affect their commitment to us.

If we cannot maintain successful partnerships, our business, financial condition and operating results may be adversely affected.

 

41


Table of Contents

International expansion of our business exposes us to business, regulatory, political, operational, financial, and economic risks associated with doing business outside of the United States.

Our business strategy incorporates significant international expansion, with initial focus on emerging markets such as India, China and Brazil. We plan to engage in manufacturing, maintain sales representatives and conduct clinical trials outside of the United States. Doing business internationally involves a number of risks, including but not limited to:

 

    multiple, conflicting, and changing laws and regulations such as privacy regulations, tax laws, export and import restrictions, employment laws, regulatory requirements, and other governmental approvals, permits, and licenses;

 

    failure by us to obtain and maintain regulatory approvals for the use of our products in various countries;

 

    additional potentially relevant third-party patent rights;

 

    complexities and difficulties in obtaining protection and enforcing our intellectual property;

 

    difficulties in staffing and managing foreign operations;

 

    limits in our ability to penetrate international markets;

 

    financial risks, such as longer payment cycles, difficulty collecting accounts receivable, the impact of local and regional financial crises on demand and payment for our products, and exposure to foreign currency exchange rate fluctuations;

 

    natural disasters, political and economic instability, including wars, terrorism, and political unrest, outbreak of disease, boycotts, curtailment of trade, and other business restrictions;

 

    certain expenses including, among others, expenses for travel, translation, and insurance; and

 

    regulatory and compliance risks that relate to maintaining accurate information and control over sales and activities that may fall within the purview of the U.S. Foreign Corrupt Practices Act, or FCPA, its books and records provisions, or its anti-bribery provisions.

Risks Related to Financial Results, Need for Additional Financing and Debt Arrangements Following the Merger

We will require substantial additional funds to obtain regulatory approval for and commercialize our biosimilar product candidates and any future pipeline product candidates and, if additional capital is not available, we may need to limit, scale back or cease our operations.

Since our inception, we have devoted substantial resources to the preclinical and clinical development of our most advanced biosimilar product candidate, BOW015, a proposed biosimilar of Remicade (infliximab). With respect to our commencement of Phase 3 trial for BOW015 in Europe in 2015, we will incur substantial costs associated with such trials. We believe that we will continue to expend substantial resources for the foreseeable future for the clinical development of our current pipeline of biosimilar product candidates, including under our intended collaboration with Livzon in China and the development of any other indications and product candidates we may choose to pursue. These expenditures will include costs associated with research and development, conducting preclinical studies and clinical trials, and manufacturing and supply as well as marketing and selling any products approved for sale. In addition, other unanticipated costs may arise. Because the outcome of any clinical trial is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of BOW015 in all of the markets in which we plan to commercialize the product, and our pipeline of other product candidates.

 

 

42


Table of Contents

We believe that the net cash and cash equivalents associated with this merger, together with our existing cash and cash equivalents and proceeds from the recent issuance of Epirus Series B preferred stock and convertible notes, will be sufficient to fund our operations into the third quarter of 2015. We may seek additional capital due to favorable market conditions or strategic considerations, even if we believe we have sufficient funds for our current or future operating plans. We may also seek to raise additional funds before that time if our research and development expenses exceed current expectations, our collaboration funding is less than current assumptions or expectations, or we encounter obstacles to our development and commercialization of our product candidates that were not anticipated. This could occur for many reasons, including:

 

    our product candidates require more extensive clinical or pre-clinical testing, our research and development programs for our product candidates do not proceed as expected, our clinical trials take longer to complete than we currently expect or our clinical trials are not successful;

 

    we advance more of our product candidates than expected into costly later stage clinical trials;

 

    we advance more of our pre-clinical product candidates than expected into early stage clinical trials;

 

    our revenue generating collaboration agreements are terminated;

 

    the time and costs involved in obtaining regulatory approvals are higher than anticipated in one or more jurisdictions where we are seeking to manufacture and/or market our products;

 

    some or all of our product candidates fail in clinical or pre-clinical studies or prove to be less commercially promising than we expect or we are forced to seek additional product candidates;

 

    we are required, or consider it advisable, to acquire or license rights from one or more third parties;

 

    we determine to enter into a business combination or acquire or license rights to additional product candidates or new technologies;

 

    the cost of regulatory, manufacturing and commercialization activities, if any, relating to our product candidates, are higher, or take longer to establish than anticipated; and

 

    we are subject to litigation in relation to our activities with respect to our product candidates, including potential patent litigation with innovator companies or others who may hold patents.

While we expect to seek additional funding through public or private financings, we may not be able to obtain financing on acceptable terms, or at all. In addition, the terms of any financings may be dilutive to, or otherwise adversely affect, holders of Zalicus common stock, including the current holders of Epirus capital stock that will receive shares of Zalicus common stock in the merger. We may also seek additional funds through arrangements with collaborators or others. These arrangements would generally require us to relinquish rights to some of our technologies, product candidates or products, and we may not be able to enter into such agreements on acceptable terms, if at all. The arrangements also may include issuances of equity, which may also be dilutive to, or otherwise adversely affect, holders of Zalicus common stock, including the current holders of Epirus capital stock that will receive shares of Zalicus common stock in the merger. There can be no assurance that we will be able to access equity or credit markets in order to finance our operations or expand development programs for any of our product candidates, or that there will not be a further deterioration in financial markets and confidence in economies. We may also have to scale back or further restructure our operations. If we are unable to obtain additional funding on a timely basis, we may be required to curtail or terminate some or all of our research or development programs.

Zalicus and Epirus have a history of operating losses. We expect to incur significant operating losses and may never be profitable. Zalicus common stock is a highly speculative investment.

Zalicus commenced operations in March 2000 and has no approved products of its own and has generated no direct product revenue. Zalicus has incurred operating losses since Zalicus’ inception in 2000. As of March 31, 2014, Zalicus had an accumulated deficit of $383.4 million. Epirus has historically incurred operating losses as well,

 

43


Table of Contents

and has never been cash-positive, and as of December 31, 2013, Epirus had an accumulated deficit of $44.7 million. We have spent, and expect to continue to spend, significant resources to fund research and development of our product candidates and to enhance our drug discovery technologies. We expect to incur substantial operating losses over the next several years due to our ongoing research, development, pre-clinical testing, and clinical trial activities. As a result, our accumulated deficit will continue to increase.

Our product candidates are in the early stages of development and may never result in any revenue. We will not be able to generate product revenue unless and until one of our product candidates successfully completes clinical trials and receives regulatory approval. We may seek to obtain revenue from collaboration or licensing agreements with third parties. Our current collaboration and license agreements may not provide us with material, sustainable ongoing future revenue, and we may not be able to enter into additional collaboration agreements. Even if we eventually generate product revenues, we may never be profitable, and if we ever achieve profitability, we may not be able to sustain it.

Risks Related to Regulatory Approvals

The regulatory approval process is costly and lengthy and, for biosimilar products, still evolving. We may not be able to successfully obtain all required regulatory approvals.

The pre-clinical development, clinical trials, manufacturing, marketing, testing, approval, and labeling of pharmaceutical and biological products, including biosimilars, are all subject to extensive regulation by numerous regulatory authorities throughout the world. We or our collaborators must obtain regulatory approval for product candidates before marketing or selling any of them. The approval process is typically lengthy and expensive, and approval is never certain. It is not possible to predict with any specificity how long the approval processes of the applicable regulatory authorities for any of our products will take or whether any such approvals ultimately will be granted on a timely basis or at all. Moreover, we expect to seek regulatory approvals in jurisdictions in which we have limited experience navigating the regulatory frameworks, or where the regulatory frameworks for the approval of biosimilars are not well-developed and are constantly evolving. In particular, the regulatory standards applicable to establish biosimilarity vary by jurisdiction. The last ten years has seen the establishment in many jurisdictions of a formal regulatory regime for review and approval of biosimilar products, but these regimes are at differing stages of development, with often limited harmonization between major jurisdictions. We plan to continue to analyze and incorporate into our biosimilar development plans any new laws, regulations, or policies promulgated or established by relevant authorities. The costs of development and approval, along with the probability of success for our biosimilar product candidates, will be dependent upon application of any laws and regulations issued by the relevant regulatory authorities.

Regulatory agencies generally have substantial discretion in the pharmaceutical and biologic/biosimilar approval processes, and positive results in pre-clinical testing or early phases of clinical studies offer no assurance of success in later phases of the approval process. Generally, pre-clinical and clinical testing of products can take many years and require the expenditure of substantial resources, and the data obtained from these tests and trials can be susceptible to varying interpretations that could delay, limit or prevent regulatory approval. Any delay in obtaining, or failure to obtain, approvals could prevent or adversely affect the marketing of our products or our collaborator’s products and our ability to generate product revenue. The risks associated with the approval process include delays or rejections in the regulatory approval process based on the failure of clinical or other data to meet expectations, or the failure of the product or medical device to meet a regulatory agency’s requirements for safety, efficacy and quality. In addition, regulatory approval, if obtained, may significantly limit the indicated uses for which a product may be marketed.

Clinical trials can be delayed for a variety of reasons, including delays related to:

 

    ongoing discussions with the regulatory authorities regarding the scope or design of clinical trials, or obtaining approval from regulatory authorities to commence a trial;

 

 

44


Table of Contents
    delays or the inability to obtain required approvals from ethics committees or other governing entities at clinical sites selected for participation in our clinical trials;

 

    delays in enrolling patients and volunteers into clinical trials;

 

    lower than anticipated retention rates of patients and volunteers in clinical trials;

 

    the need to repeat clinical trials as a result of inconclusive or negative results or poorly executed testing;

 

    lack of effectiveness of a product candidate in other clinical trials;

 

    lack of sufficient funds for further clinical development;

 

    insufficient supply or deficient quality of product candidate materials or other materials necessary to conduct clinical trials;

 

    unfavorable regulatory inspection of a manufacturing, testing, labeling or packaging facility for drug substance or drug product;

 

    unfavorable regulatory inspection and review of a clinical or pre-clinical trial site or records of any clinical or pre-clinical investigation;

 

    serious and unexpected drug-related side effects or serious adverse safety events experienced by participants in clinical trials or by patients following commercialization; or

 

    the placement of a clinical hold on a product candidate in an ongoing clinical trial.

Positive or timely results from pre-clinical studies and early clinical trials do not ensure positive or timely results in late stage clinical trials or product approval by regulatory authorities. Product candidates that show positive pre-clinical or early clinical results often fail in later stage clinical trials. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which could delay, limit, or prevent regulatory approvals.

We may not be able to conduct clinical trials at preferred sites, enlist clinical investigators, enroll sufficient numbers of patients, or begin or successfully complete clinical trials in a timely fashion, if at all. Any failure to perform may delay or terminate the trials. Our current clinical trials may be insufficient to demonstrate that our potential products are active, safe, or effective and as a result we may decide to abandon further development of such product candidates. Additional clinical trials may be required if clinical trial results are negative or inconclusive, which will require us to incur additional costs and significant delays. If we do not receive the necessary regulatory approvals, we will not be able to generate product revenues and will not become profitable. We may encounter significant delays in the regulatory process that could result in excessive costs that may prevent us from continuing to develop our product candidates. In addition, the failure to comply with applicable regulatory requirements may result in criminal prosecution, civil penalties, product recalls, withdrawal of product approval, mandatory restrictions or other actions that could impair our ability to conduct our business.

Even if we receive regulatory approvals for our product candidates, we will be subject to ongoing obligations and continued regulatory review, which may result in significant additional expense. If we fail to comply with continuing regulatory requirements, we could lose regulatory approvals, and our business would be adversely affected.

Even if we obtain regulatory approvals for our product candidates, we will be subject to extensive and continued regulatory review regarding manufacturing, labeling, packaging, distribution, adverse event reporting, storage, import, export, advertising, promotion and recordkeeping, among other activities. These requirements include submissions of safety and other post-marketing information and reports, manufacturing facility registration and inspection, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval. Any regulatory approvals that we receive for our product candidates may also be

 

45


Table of Contents

subject to limitations on the approved indicated uses for which the product may be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing and surveillance to monitor the safety and efficacy of the product candidate. Later discovery of previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:

 

    restrictions on the marketing or manufacturing of the product, withdrawal of the product from the market, or voluntary or mandatory product recalls;

 

    fines, warning letters or holds on clinical trials;

 

    refusal by regulatory authorities to approve pending applications or supplements to approved applications filed by us, or suspension or revocation of product approvals;

 

    product seizure or detention, recalls, or refusal to permit the import or export of products; and

 

    injunctions or the imposition of civil or criminal penalties.

The laws, regulations, and policies of the regulatory authorities may change and additional laws, regulations, and policies may be enacted or established that could prevent, limit or delay regulatory approval of our product candidates. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.

Risks Related to Intellectual Property

Our success depends upon our ability to obtain and maintain intellectual property protection for our products and technologies.

Our success will depend on our ability to obtain and maintain adequate protection of our intellectual property, including our proprietary products or product candidates. We intend to apply for patents with claims covering our products, product candidates, technologies and processes, when and where we deem it appropriate to do so and plan to take other steps to protect our intellectual property. We have applied for patent protection covering our clinical and pre-clinical product candidates in the United States, and some, but not all, foreign countries. In countries where we have not and do not seek patent protection, third parties may be able to manufacture and sell our products without our permission, and we may be unable to stop them from doing so.

Similar to other biotechnology companies, our patent position is generally uncertain and involves complex legal and factual questions. In addition, the laws of some countries do not protect proprietary rights to the same extent as the laws of the United States, and other biotechnology companies have encountered significant problems in protecting and defending their proprietary rights in non-United States jurisdictions. Whether filed in the United States or abroad, our patent applications may be challenged or may fail to result in issued patents. In addition, our existing patents and any future patents may not be sufficiently broad to prevent others from practicing our technologies or from developing or commercializing competing products. Furthermore, others may independently develop or commercialize similar or alternative technologies or drugs, or design around our patents. Our patents may be challenged, invalidated or fail to provide any competitive advantages.

The United States Patent and Trademark Office and similar agencies in foreign jurisdictions may not agree with our view that our combination product candidates are patentable or novel and non-obvious, and on this basis may deny patent protection. Even if we receive patent protection, others may attempt to invalidate our patent or trade secret rights. Even if our patent or trade secret rights are not directly challenged, disputes among third parties could lead to the weakening or invalidation of intellectual property rights.

 

 

46


Table of Contents

If we do not obtain or are unable to maintain adequate patent or trade secret protection for products in the United States, competitors could duplicate them without repeating the extensive testing that we will be required to undertake to obtain approval of the products by the FDA and other regulatory authorities. Regardless of any patent protection, under the current statutory framework the FDA is prohibited by law from approving any generic version of any of Zalicus’ product candidates for five years after it has approved Zalicus’ product candidates. Upon the expiration of that period, or if that time period is altered, the FDA could approve a generic version of Zalicus’ product unless we have patent protection sufficient to enforce our rights. Without sufficient patent protection, the applicant for a generic version of Zalicus’ product would be required only to conduct a relatively inexpensive study to show that its product is bioequivalent to Zalicus’ product and would not have to repeat the studies that we conducted to demonstrate that the product is safe and effective. In the absence of adequate patent protection in other countries, competitors may similarly be able to obtain regulatory approval of products that duplicate Zalicus’ products.

We may not be able to develop or commercialize our product candidates due to intellectual property rights held by third parties.

Although we aim to launch our biosimilar product candidates in markets where we are not aware of any valid patent protection covering the reference biologic product, or in some cases where the fundamental patent protection for the reference product has expired, if a third party holds a patent to a formulation technology related to Zalicus’ or Epirus’ planned formulation of a product candidate, we may not be able to develop or commercialize such product candidates without first obtaining a license to such patent, or waiting for such patent to expire. Our business will be harmed if we are unable to use the optimal formulation of our product candidates, which may occur because the formulations or methods of use are covered by one or more third-party patents, and a license to such patents is unavailable or is only available on terms that are unacceptable. In the case of our biosimilar product candidates, this may prevent us from establishing the equivalence to the reference biologic product required to gain regulatory approval for sale of such biosimilar product within a time frame that would make the commercialization of the affected biosimilar product candidate commercially viable.

If we are unable to protect the confidentiality of our trade secrets, the value of our technology could be materially adversely affected and our business would be harmed.

In addition to the protection afforded by patents, we also rely on trade secret protection and confidentiality agreements to protect proprietary know-how that may not be patentable, processes for which patents may be difficult to obtain or enforce and any other elements of our product development processes that involve proprietary know-how, information or technology that is not covered by patents. This includes our rights in our proprietary SCALE technology, which is critical to the success of our In Market, For Market strategy for commercialization of our product candidates in emerging markets.

As part of our efforts to protect our trade secrets and other confidential information, we require our employees, consultants, collaborators and advisors to execute confidentiality agreements upon the commencement of their relationships with us, and we include equivalent provisions in all of our material collaboration and license agreements. These agreements require that all confidential information developed by the individual or made known to the individual by us during the course of the individual’s relationship with us be kept confidential and not disclosed to third parties. These agreements, however, may not provide us with adequate protection against improper use or disclosure of confidential information, and these agreements may be breached. Adequate remedies may not exist in the event of unauthorized use or disclosure of our confidential information. A breach of confidentiality could significantly affect our competitive position. In addition, in some situations, these agreements may conflict with, or be subject to, the rights of third parties with whom our employees, consultants, collaborators or advisors have previous employment or consulting relationships. To the extent that our employees, consultants or contractors use any intellectual property owned by others in their work for us, disputes may arise as to the rights in any related or resulting know-how and inventions. Also, third parties, including our competitors, may independently develop substantially equivalent proprietary information and

 

47


Table of Contents

technologies or otherwise lawfully gain access to our trade secrets and other confidential information. In such a case, we would have no right to prevent such third parties from using such proprietary information or technologies to compete with us, which could harm our competitive position.

In addition, where we enter into In Market, For Market collaborations to develop and commercialize our product candidates in emerging markets, these collaborations are expected to involve the establishment in such countries of independent manufacturing capacity for the applicable product candidates. Establishing such manufacturing capacity is expected to involve certain technology transfer by us to our strategic partners, and the provision by us of technical assistance in connection with such transfer. If our agreements with our collaborators are terminated, although these agreements provide that our former partners have no further rights in the transferred technology, such third parties could use the technology and know-how they received from us to continue to develop and commercialize the applicable products, in breach of our agreements with them, and which would materially impact our revenues from commercialization of our product candidates. In such case, it may be necessary for us to become involved in litigation or arbitration to retain and defend our rights in such technology, and to prevent such commercialization. Any such proceedings, which would be likely to be conducted in a country outside the United States would be costly and time consuming, and would divert significant management time and resources, with no guarantee of a successful outcome.

Litigation or third-party claims of intellectual property infringement could require substantial time and money to resolve. Unfavorable outcomes in these proceedings could limit our intellectual property rights and our activities.

We may need to resort to litigation to enforce or defend our intellectual property rights, including any patents issued to us. If a competitor or collaborator files a patent application claiming technology also invented by us, in order to protect our rights, we may have to participate in an expensive and time consuming interference proceeding before the United States Patent and Trademark Office or equivalent patent bodies in other territories. We cannot guarantee that our product candidates will be free of claims by third parties alleging that we have infringed their intellectual property rights. Third parties may assert that we are employing their proprietary technologies without authorization and they may resort to litigation to attempt to enforce their rights. Third parties may have or obtain patents in the future and claim that the use of our technology or any of our product candidates infringes their patents. We may not be able to develop or commercialize product candidates because of patent protection others have. Our business will be harmed if we cannot obtain a necessary or desirable license, can obtain such a license only on terms we consider to be unattractive or unacceptable, or if we are unable to redesign our product candidates or processes to avoid actual or potential patent or other intellectual property infringement.

Our efforts to obtain, protect and defend our patent and other intellectual property rights, whether we are successful or not, may require us to incur substantial costs, including the diversion of management and technical personnel. An unfavorable ruling in patent or intellectual property litigation could subject us to significant liabilities to third parties, require us to cease developing, manufacturing or selling the affected products or using the affected processes, require us to license the disputed rights from third parties, or result in awards of substantial damages against us. In addition, defending patent or other intellectual property litigation, whether we are successful or not, can be very expensive and may require us to incur substantial costs, including the diversion of management and technical personnel. During the course of any patent litigation, there may be public announcements of the results of hearings, motions, and other interim proceedings or developments in the litigation. If securities analysts or investors regard these announcements as negative, the market price of Zalicus common stock may decline. General proclamations or statements by key public figures may also have a negative impact on the perceived value of our intellectual property.

There can be no assurance that we would prevail in any intellectual property infringement action, will be able to obtain a license to any third-party intellectual property on commercially reasonable terms, successfully develop non-infringing alternatives on a timely basis, or license non-infringing alternatives, if any exist, on

 

48


Table of Contents

commercially reasonable terms. Any significant intellectual property impediment to our ability to develop and commercialize our products could seriously harm our business and prospects.

Industry Related Risks

If efforts by manufacturers of reference products to delay or limit the use of biosimilars are successful, our sales of biosimilar products may suffer.

Many manufacturers of reference products have increasingly used legislative, regulatory and other means in attempts to delay regulatory approval of and competition from biosimilars. These efforts have included sponsoring legislation to prevent pharmacists from substituting biosimilars for prescribed reference products or to make such substitutions more difficult by establishing notification, recordkeeping, and/or other requirements, as well as seeking to prevent manufacturers of biosimilars from referencing the brands of the innovator products in biosimilar product labels and marketing materials. If these or other efforts to delay or block competition are successful, we may be unable to sell our biosimilar product candidates, which could have a material adverse effect on our sales and profitability.

Foreign governments tend to impose strict price controls, which may adversely affect our revenue, if any.

In some foreign countries, the pricing of prescription pharmaceuticals is subject to governmental control. This is likely also to apply to pricing of biosimilar products. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies. If reimbursement of our products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, our business could be adversely affected.

We may have significant product liability exposure which may harm our business and our reputation.

Although our product candidates are biosimilar products, and are designed to be equivalent against reference products that have an established safety record in the indications in which they are marketed and used, we face a risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize any products. For example, we may incur liability if any product we develop allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit commercialization of our products. Regardless of the merits or eventual outcome, liability claims may result in:

 

    decreased demand for BOW015, or any future product candidates;

 

    injury to our reputation and significant negative media attention;

 

    withdrawal of clinical trial participants or cancellation of clinical trials;

 

    costs to defend the related litigation;

 

    a diversion of management’s time and our resources;

 

    substantial monetary awards to trial participants or patients;

 

    regulatory investigations, product recalls, withdrawals or labeling, marketing or promotional restrictions;

 

    loss of revenue; and

 

    the inability to commercialize any products we develop.

 

49


Table of Contents

Our inability to obtain and maintain sufficient product liability insurance at an acceptable cost and scope of coverage to protect against potential product liability claims could impact the commercialization of BOW015, and any future products we develop. We currently carry product liability insurance covering our clinical trials in the amount of $5 million in the aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies also have various exclusions and deductibles, and we may be subject to a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts. Moreover, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses in all the jurisdictions in which we seek to market and sell our products. As we obtain approvals for marketing BOW015 and any other product candidates in more jurisdictions, we intend to expand our insurance coverage to include the sale of such products; however, we may be unable to obtain this liability insurance on commercially reasonable terms.

We use and generate materials that may expose us to expensive and time-consuming legal claims.

Our development programs involve the use of hazardous materials, chemicals, and biological materials. We are subject to foreign, federal, state and local laws and regulations governing the use, manufacture, storage, and disposal of materials and waste products. We believe that our safety procedures for handling these materials comply with the standards prescribed by laws and regulations. However, we may incur significant costs to comply with current or future environmental laws and regulations. In addition, we cannot completely eliminate the risk of contamination or injury from hazardous materials. In the event of an accident, an injured party may seek to hold us liable for any damages that result. Any liability could exceed the limits or fall outside the coverage of our insurance, and we may not be able to maintain insurance on acceptable terms, if at all.

Risks Related to an Investment in Our Common Stock

A reverse split of Zalicus common stock could adversely impact our company and the trading of our common stock.

In connection with the merger, Zalicus plans to effect reverse stock split of its common stock to enable it to comply with The NASDAQ Capital Market’s minimum bid price listing requirement. Notwithstanding the reverse stock split and compliance with The NASDAQ Capital Market’s minimum bid price listing requirement, Zalicus may not be able to maintain a price per share of our common stock in excess of $1.00 per share or the additional criteria for continued listing of our common stock set forth by The NASDAQ Capital Market. The occurrence of any future non-compliance with The NASDAQ Capital Market’s minimum bid price or other listing requirements may have a material adverse effect on our stock price, our business and our prospects.

Our common stock has a volatile public trading price.

The market price for our common stock has been volatile, and market prices for securities of companies comparable to us have been highly volatile. In addition, the stock market as a whole and biotechnology and other life science stocks in particular have experienced significant recent price volatility. Like our common stock, these stocks have experienced significant price and volume fluctuations for reasons unrelated to the operating performance of the individual companies. Factors giving rise to this volatility may include:

 

    regulatory developments in both the United States and abroad;

 

    developments concerning proprietary rights, including patents and litigation matters;

 

    disclosure of new collaborations or other strategic transactions;

 

    public concern about the safety or efficacy of our product candidates or technology, their components, or related technology or new technologies generally;

 

 

50


Table of Contents
    public announcements by our competitors or others regarding new products or new product candidates; and

 

    general market conditions and comments by securities analysts and investors.

Fluctuations in our operating losses could adversely affect the price of our common stock.

Our operating losses may fluctuate significantly on a quarterly basis. Some of the factors that may cause our operating losses to fluctuate on a period-to-period basis include the status of our clinical and pre-clinical development programs, level of expenses incurred in connection with our clinical and pre-clinical development programs, restructuring costs, implementation or termination of collaboration, licensing, manufacturing or other material agreements with third parties, non-recurring revenue or expenses under any such agreement, and compliance with regulatory requirements. Period-to-period comparisons of our historical and future financial results may not be meaningful, and investors should not rely on them as an indication of future performance. Our fluctuating losses may fail to meet the expectations of securities analysts or investors. Our failure to meet these expectations may cause the price of our common stock to decline.

Anti-takeover provisions in our charter documents and provisions of Delaware law may make an acquisition more difficult and could result in the entrenchment of management.

We are incorporated in Delaware. Anti-takeover provisions of Delaware law and our charter documents may make a change in control or efforts to remove management more difficult. Also, under Delaware law, our board of directors may adopt additional anti-takeover measures. The existence of the following provisions of Delaware law and our sixth amended and restated charter, as amended, or our amended and restated bylaws could limit the price that investors might be willing to pay in the future for shares of our common stock.

Our charter authorizes our board of directors to issue up to 5,000,000 shares of preferred stock and to determine the terms of those shares of stock without any further action by our stockholders. If the board of directors exercises this power to issue preferred stock, it could be more difficult for a third party to acquire a majority of our outstanding voting stock and vote the stock they acquire to remove management or directors.

Our charter also provides staggered terms for the members of our board of directors. Under Section 141 of the DGCL and our charter, our directors may be removed by stockholders only for cause and only by vote of the holders of 75% of voting shares then outstanding. These provisions may prevent stockholders from replacing the entire board in a single proxy contest, making it more difficult for a third party to acquire control without the consent of our board of directors. These provisions could also delay the removal of management by the board of directors with or without cause. In addition our amended and restated bylaws limit the ability our stockholders to call annual meetings of stockholders.

Our equity incentive plans generally permit our board of directors to provide for acceleration of vesting of options granted under these plans in the event of certain transactions that result in a change of control. If our board of directors uses its authority to accelerate vesting of options, this action could make an acquisition more costly, and it could prevent an acquisition from going forward.

Under Section 203 of the DGCL, a corporation may not engage in a business combination with any holder of 15% or more of its capital stock until the holder has held the stock for three years unless, among other possibilities, the board of directors approves the transaction in advance.

 

51


Table of Contents

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ZALICUS

The historical financial data set forth below should be read in conjunction with “Zalicus Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Zalicus’ consolidated financial statements and condensed consolidated financial statements and the related notes thereto, which are attached as Appendices K and L, respectively. The selected financial data in this section are not intended to replace the financial statements. The following table presents selected historical consolidated financial data of Zalicus. The selected financial data of Zalicus for each of the years ended December 31, 2013, 2012 and 2011, and as of December 31, 2013 and 2012 are derived from Zalicus’ audited consolidated financial statements and related notes, which are attached hereto as Appendix K. The selected financial data of Zalicus for each of the years ended December 31, 2010 and 2009, and as of December 31, 2011, 2010 and 2009, have been derived from Zalicus’ audited consolidated financial statements for such years, which have not been included in this joint proxy statement/prospectus. The selected financial data of Zalicus for the three months ended March 31, 2014 and 2013, and as of March 31, 2014 are derived from Zalicus’ unaudited condensed consolidated financial statements and related notes, which are attached hereto as Appendix L. The selected financial data of Zalicus as of March 31, 2013 has been derived from Zalicus’ unaudited condensed consolidated balance sheet as of March 31, 2013 which has not been included in this joint proxy statement/prospectus.

 

    Three Months Ended
March 31,
    Year ended December 31,  
    2014     2013     2013     2012     2011     2010     2009  
    (unaudited)     (unaudited)                                
    (in thousands, except per share data)  

Statement of Operations Data

             

Revenue

  $ 1,603      $ 3,674      $ 14,731      $ 12,550      $ 8,184      $ 46,741      $ 17,273   

Net (loss) income from continuing operations

  $ (3,790   $ (8,047   $ (38,617   $ (44,327   $ (42,043   $ (35,045   $ 1,284   

Gain on discontinued operations

  $ —        $ —        $ —        $ —        $ —        $ —        $ 14,104   

Net (loss) income

  $ (3,790   $ (8,047   $ (38,617   $ (44,327   $ (42,043   $ (35,045   $ 15,388   

Basic (loss) earnings per common share

  $ (0.15   $ (0.38   $ (1.68   $ (2.27   $ (2.59   $ (2.54   $ 2.47   

Diluted (loss) earnings per common share

  $ (0.15   $ (0.38   $ (1.68   $ (2.27   $ (2.59   $ (2.54   $ 2.46   

Dividends declared per common share

  $ —        $ —        $ —        $ —        $ —        $ —        $ —     

Balance Sheet Data (at period end)

             

Cash, cash equivalents and short-term investments

  $ 11,044      $ 24,298      $ 17,958      $ 34,590      $ 47,874      $ 44,619      $ 23,330   

Working Capital

  $ 7,516      $ 11,381      $ 5,850      $ 18,738      $ 35,663      $ 38,803      $ 18,350   

Total assets

  $ 16,121      $ 48,203      $ 32,106      $ 61,375      $ 79,883      $ 82,669      $ 88,152   

Total debt, excluding current portion

  $ —        $ 7,067      $ 2,132      $ 8,772      $ 15,099      $ 2,523      $ —     

Accumulated deficit

  $ (383,430   $ (349,070   $ (379,640   $ (341,023   $ (296,696   $ (254,653   $ (219,608

Zalicus stockholders’ equity

  $ 10,656      $ 23,504      $ 14,182      $ 31,026      $ 43,913      $ 62,997      $ 52,913   

Statement of Cash Flows Data

             

Net cash provided by (used in):

             

Operating activities

  $ (5,224   $ (8,715   $ (29,735   $ (38,489   $ (33,376   $ 18,678      $ (24,994

Investing activities

  $ 7,200      $ 8,970      $ 29,886      $ 15,325      $ (3,620   $ (27,563   $ 23,373   

Financing activities

  $ (8,889   $ (1,562   $ 13,286      $ 24,943      $ 36,938      $ 2,935      $ 2   

 

52


Table of Contents

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA

The following selected unaudited pro forma condensed combined financial data as of and for the three months ended March 31, 2014, and for the year ended December 31, 2013 give effect to the proposed merger of Zalicus and Epirus, which will be accounted for as a “reverse merger” under the acquisition method of accounting for business combinations with Epirus treated as the accounting acquirer. Epirus was determined to be the accounting acquirer based upon the terms of the merger and other factors, such as relative voting rights and the composition of the combined company’s board and senior management. The selected unaudited pro forma condensed combined financial data presented below is based on, and should be read in conjunction with, the historical financial statements of Zalicus that appear elsewhere in this joint proxy statement/prospectus, the unaudited pro forma condensed combined financial statements that appear elsewhere in this joint proxy statement/prospectus, including the footnotes thereto, and the historical financial statements of Epirus that appear elsewhere in this joint proxy statement/prospectus. See the sections entitled, “Where You Can Find More Information” and “Unaudited Pro Forma Condensed Combined Financial Statements,” for additional information. The selected unaudited pro forma condensed combined financial data is presented for illustrative purposes only and is not necessarily indicative of the actual or future financial position or results of operations that would have been realized if the proposed merger had been completed as of the dates indicated in the unaudited pro forma condensed combined financial statements or that will be realized upon the consummation of the proposed merger.

 

     Unaudited Pro Forma Combined     Unaudited Pro Forma Combined  
     Three Months Ended March 31, 2014     Year Ended December 31, 2013  
     (in thousands, except per share amounts)     (in thousands, except per share amounts)  

Statement of Operations Data

    

Total revenue

   $ —        $ 6,661   

Total operating expenses

   $ 10,501      $ 62,440   

Loss from operations

   $ (10,501   $ (55,779

Net loss

   $ (11,924   $ (62,407

Net loss per common share, basic and diluted

   $ (0.08   $ (0.40

 

     Unaudited Pro Forma Combined  
     As of March 31, 2014  
     (in thousands)  

Balance Sheet Data

  

Cash and cash equivalents

   $ 22,767   

Working capital

   $ 5,539   

Total assets

   $ 45,566   

Total debt, excluding current portion

   $ —     

Accumulated deficit

   $ (56,470

Total stockholders’ equity

   $ 23,638   

 

53


Table of Contents

COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA

The following selected unaudited pro forma per share information for the three months ended March 31, 2014 and for the year ended December 31, 2013 reflects the merger and related transactions as if they had occurred on January 1, 2013. The information in the table is based on, and should be read together with, the historical financial statements of Zalicus that appear elsewhere in this joint proxy statement/prospectus, the unaudited pro forma condensed combined financial statements that appear elsewhere in this joint proxy statement/prospectus, including the notes thereto, and the historical financial statements of Epirus that appear elsewhere in this joint proxy statement/prospectus. See the sections entitled, “Where You Can Find More Information” and “Unaudited Pro Forma Condensed Combined Financial Statements.”

The unaudited pro forma per share information is presented for illustrative purposes only and are not necessarily indicative of actual or future financial position or results of operations that would have been realized if the proposed merger had been completed as of the dates indicated or will be realized upon the completion of the proposed merger. Zalicus and Epirus have not declared or paid any dividends during the periods presented.

 

     As of and for the
Three Months Ended
March 31, 2014
    As of and for the
Year Ended
December 31, 2013
 

Epirus:

    

Book value per share

    

Historical

   $ (17.81   $ (22.03

Pro forma combined

   $ 0.15     

Basic and diluted net loss per share

    

Historical

   $ (3.83   $ (11.70

Pro forma combined

   $ (0.08   $ (0.40

Zalicus:

    

Book value per share

    

Historical

   $ 0.41      $ 0.54   

Basic and diluted net loss per share

    

Historical

   $ (0.15   $ (1.68

 

54


Table of Contents

COMPARATIVE MARKET PRICE INFORMATION

Zalicus

Zalicus’ common stock currently trades on The NASDAQ Capital Market under the symbol “ZLCS” (although, if the proposed reverse stock split is implemented, NASDAQ would likely add the letter “D” to the end of the trading symbol for a period of 20 trading days to indicate that the reverse stock split has occurred). The following table shows the high and low sales price per share for the common stock by quarter, as reported by The NASDAQ Capital Market for the periods indicated:

 

     High      Low  

Fiscal Year Ended December 31, 2012

     

First Quarter

   $ 7.62       $ 5.88   

Second Quarter

   $ 8.70       $ 4.56   

Third Quarter

   $ 8.88       $ 4.44   

Fourth Quarter

   $ 4.56       $ 2.58   

Fiscal Year Ended December 31, 2013

     

First Quarter

   $ 4.98       $ 3.60   

Second Quarter

   $ 4.20       $ 2.88   

Third Quarter

   $ 7.20       $ 2.82   

Fourth Quarter

   $ 8.28       $ 0.88   

Fiscal Year Ending December 31, 2014

     

First Quarter

   $ 1.92       $ 1.12   

Second Quarter (through May 30, 2014)

   $ 1.12       $ 1.06   

On April 15, 2014, the last full trading day immediately preceding the public announcement of the merger, and on May 30, 2014, the most recent practicable date prior to the mailing of this joint proxy statement/prospectus, the last reported sales prices of Zalicus’ common stock, as reported by The NASDAQ Capital Market, were $1.03 per share and $1.09 per share, respectively. You are encouraged to obtain current trading prices for Zalicus’ common stock in considering whether to vote on the matters being considered at the annual meeting.

As of May 16, 2014, there were approximately 47 holders of record of Zalicus’ common stock.

Zalicus has not paid cash dividends on its common stock and has no intention to do so in the foreseeable future.

Securities Authorized For Issuance Under Equity Compensation Plans

 

Plan Category

   Number of Securities
to be Issued upon
Exercise of
Outstanding
Options, Warrants
or Rights(1)
     Weighted Average
Exercise Price of
Outstanding

Options, Warrants
or Rights(2)
     Number of
Securities
Remaining
Available for
Future Issuance
Under Equity
Compensation
Plan (Excluding
Securities
Reflected in
Column(a))(1)(3)
 
     (a)      (b)      (c)  

Equity compensation plans approved by security holders

     1,754,241       $ 7.31         1,137,977   

Equity compensation plans not approved by security holders

     —           —           —     

Total

     1,754,241       $ 7.31         1,137,977   

 

(1) As of December 31, 2013.
(2) For outstanding restricted stock units, the exercise price was deemed to be $0.

 

55


Table of Contents
(3) The 2004 Plan contains an “evergreen provision” that allows for an annual increase in the number of shares of common stock available for issuance under the 2004 Plan, which annual increase is and will be added on the first day of each fiscal year from 2011 through 2015, inclusive, and will be equal to the least of: (i) 666,666 shares of common stock, (ii) 4% of the outstanding shares on that date, or (iii) such lesser amount determined by the board of directors.

Comparative Stock Performance Graph

The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” with the Securities and Exchange Commission, and such information shall not be incorporated by reference into any future filing under the Securities Act or Exchange Act, except to the extent that Zalicus specifically incorporates it by reference into such filing.

The comparative stock performance graph below compares the cumulative total stockholder return (assuming reinvestment of dividends, if any) from investing $100 on December 31, 2008, and plotted at the close of the last trading day of the fiscal year ended December 31, 2013, in each of (i) Zalicus common stock, (ii) the NASDAQ Global Stock Market Index, which is referred to as the NASDAQ Stock Market Index, and (iii) the NASDAQ Global Stock Market Biotechnology Index, which is referred to as the NASDAQ Biotechnology Index; except, in the case of the NASDAQ Stock Market Index and the NASDAQ Biotechnology Index, the stock performance graph below reflects an investment date of December 31, 2008.

 

LOGO

 

     Cumulative Total Return  
     12/08      12/09      12/10      12/11      12/12      12/13  

ZALICUS INC.

     100.00         133.87         254.84         195.16         104.84         29.84   

NASDAQ COMPOSITE

     100.00         144.88         170.58         171.30         199.99         283.39   

NASDAQ BIOTECHNOLOGY

     100.00         104.67         112.89         127.04         169.50         288.38   

 

56


Table of Contents

Epirus

Epirus’ capital stock is not listed for trading on any securities exchange, and Epirus does not currently file reports with the SEC.

As of May 1, 2014, there were approximately 13 holders of record of Epirus common stock, 6 holders of record of Series A preferred stock, and 11 holders of record of Series B preferred stock.

Epirus has not paid cash dividends on its capital stock and has no intention to do so in the foreseeable future.

 

57


Table of Contents

ZALICUS ANNUAL MEETING

This joint proxy statement/prospectus is being sent to Zalicus stockholders in order to provide important information regarding the merger in connection with the solicitation of proxies by Zalicus’ board of directors for use at the annual meeting of its stockholders and at any adjournment or postponement of the annual meeting.

Date, Time and Place of the Annual Meeting

Zalicus will hold its annual meeting of its stockholders on July 15, 2014, at 9:00 a.m., local time, at the offices of Goodwin Procter LLP, Exchange Place, 53 State Street, Boston, Massachusetts 02109.

Matters for Consideration

At the Zalicus annual meeting, Zalicus stockholders will be asked to consider and vote upon the following:

 

    Proposal No. 1 to approve the issuance of shares of Zalicus common stock in the merger as contemplated by the Agreement and Plan of Merger and Reorganization, dated as of April 15, 2014, by and among Zalicus, EPIRUS Biopharmaceuticals, Inc., and BRunning, Inc., a wholly-owned subsidiary of Zalicus, as amended by Amendment No. 1 to the Agreement and Plan of Merger and Reorganization, dated as of May 7, 2014, by and between Zalicus and Epirus;

 

    Proposal No. 2 to authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect a reverse stock split of Zalicus’ issued and outstanding shares of common stock, pursuant to which any whole number of outstanding shares between and including 6 and 12, such whole number to be determined by the Zalicus board of directors and mutually agreed to by Zalicus and Epirus, would be combined and reclassified into one share of Zalicus common stock;

 

    Proposal No. 3 to authorize an amendment to Zalicus’ sixth amended and restated Certificate of Incorporation to increase the number of authorized shares of common stock from 200,000,000 to 300,000,000, as described in the joint proxy statement/prospectus, the approval of which is necessary to enable Zalicus to issue the required number of shares of Zalicus common stock to Epirus stockholders in connection with the merger, and to change the name of Zalicus to “EPIRUS Biopharmaceuticals, Inc.” subject to the consummation of the merger;

 

    Proposal No. 4 to approve an amendment to the 2004 Plan to increase the total number of shares of Zalicus common stock currently available for issuance under the 2004 Plan by 3,000,000 shares, after giving effect to the reverse stock split;

 

    Proposal No. 5 to elect Michael Kauffman and W. James O’Shea as Class III members of the board of directors, to serve until Zalicus’ 2017 annual meeting of stockholders and until their successors are duly elected and qualified; provided, however, that, if the merger is completed, the board of directors of Zalicus will be reconstituted as described in the joint proxy statement/prospectus;

 

    Proposal No. 6 to approve, on a non-binding, advisory basis, the compensation of the named executive officers;

 

    Proposal No. 7 to approve, on a non-binding, advisory basis, the “golden parachute” compensation that may be paid or become payable to Zalicus’ named executive officers in connection with the merger; and

 

    Proposal No. 8 to ratify the selection of Ernst & Young LLP as Zalicus’ independent registered public accounting firm for the fiscal year ending December 31, 2014.

Each of Proposal Nos. 1, 2 and 3 are conditioned upon each other and the approval of each such proposal is a condition to the completion of the merger. Neither the issuance of Zalicus common stock in connection with

 

58


Table of Contents

the merger, the amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect the reverse stock split, nor the amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the number of authorized shares of common stock and effect the name change will take place unless all of the Merger Proposals are approved by the Zalicus stockholders and the merger is completed. Therefore, the completion of the merger cannot proceed without the approval of Proposal Nos. 1, 2 and 3.

Zalicus stockholders may also be asked to consider and vote upon such other business as may properly come before the annual meeting, or any adjournment or postponement of the annual meeting. Zalicus is not aware of any business to be acted upon at the annual meeting other than the proposals set forth in this joint proxy statement/prospectus. If, however, other matters incident to the conduct of the annual meeting are properly brought before the annual meeting or any adjournment or postponement of the annual meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters. If you vote “FOR” Proposal Nos. 1 through 8, or if you execute and return your proxy without instruction, the proxies will be authorized to vote for any adjournment, postponement, continuations or rescheduling of the meeting.

Board of Directors’ Recommendations

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT THE ISSUANCE OF SHARES OF ZALICUS COMMON STOCK IN THE MERGER IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS AND HAS APPROVED SUCH ISSUANCE. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 1.

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT AUTHORIZING AN AMENDMENT TO ZALICUS’ SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT OF ZALICUS’ ISSUED AND OUTSTANDING SHARES OF COMMON STOCK, PURSUANT TO WHICH ANY WHOLE NUMBER OF OUTSTANDING SHARES BETWEEN AND INCLUDING SIX AND TWELVE, SUCH WHOLE NUMBER TO BE DETERMINED BY THE ZALICUS BOARD OF DIRECTORS AND MUTUALLY AGREED TO BY ZALICUS AND EPIRUS, WOULD BE COMBINED AND RECLASSIFIED INTO ONE SHARE OF ZALICUS COMMON STOCK WHICH MAY BE NECESSARY FOR ZALICUS TO MAINTAIN ITS ELIGIBILITY FOR CONTINUED LISTING ON THE NASDAQ CAPITAL MARKET, IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS AND HAS APPROVED SUCH AUTHORIZATION. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 2.

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT AN AMENDMENT TO ZALICUS’ SIXTH AMENDED AND RESTATED CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK FROM 200,000,000 SHARES TO 300,000,000 SHARES AND CHANGE ZALICUS’ NAME TO “EPIRUS BIOPHARMACEUTICALS, INC.” SUBJECT TO THE CONSUMMATION OF THE MERGER IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS, AND HAS APPROVED SUCH AMENDMENT. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 3.

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT AN AMENDMENT TO THE 2004 PLAN TO INCREASE THE NUMBER OF SHARES OF ZALICUS COMMON STOCK CURRENTLY ISSUABLE UNDER THE 2004 PLAN BY 3,000,000 SHARES, AFTER GIVING EFFECT TO THE REVERSE SPLIT, IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS AND HAS APPROVED SUCH AMENDMENT. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 4.

 

59


Table of Contents

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT THE ELECTION OF MICHAEL KAUFFMAN, M.D. AND W. JAMES O’SHEA AS CLASS III MEMBERS OF THE BOARD OF DIRECTORS, TO SERVE UNTIL ZALICUS’ 2017 ANNUAL MEETING OF STOCKHOLDERS AND UNTIL THEIR SUCCESSORS ARE DULY ELECTED AND QUALIFIED, IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS AND HAS APPROVED AND ADOPTED THE PROPOSAL; PROVIDED, HOWEVER, THAT IF EACH OF THE MERGER PROPOSALS IS APPROVED AND THE MERGER IS COMPLETED, THE ZALICUS BOARD OF DIRECTORS WILL BE RECONSTITUTED AS DESCRIBED IN THE ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 5.

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT THE ADVISORY VOTE ON EXECUTIVE COMPENSATION IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS AND HAS APPROVED SUCH ADVISORY VOTE. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 6.

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT THE ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS AND HAS APPROVED SUCH ADVISORY VOTE. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 7.

THE ZALICUS BOARD OF DIRECTORS HAS DETERMINED AND BELIEVES THAT THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS ZALICUS’ INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2014 IS ADVISABLE TO, AND IN THE BEST INTERESTS OF, ZALICUS AND ITS STOCKHOLDERS AND HAS APPROVED SUCH RATIFICATION. THE ZALICUS BOARD OF DIRECTORS RECOMMENDS THAT ZALICUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 8.

Record Date

The record date for determining the Zalicus stockholders entitled to vote at the annual meeting is May 16, 2014. Only holders of record of Zalicus common stock as of the close of business on that date are entitled to vote at the annual meeting. As of the record date, there were 26,108,910 shares of Zalicus common stock issued and outstanding, held by approximately 47 stockholders of record. Each share of Zalicus common stock issued and outstanding as of the record date entitles its holder to cast one vote on each matter submitted for stockholder approval at the annual meeting.

Quorum and Vote Required

In order to conduct business at the annual meeting, a quorum must be present. The holders of a majority of the shares of common stock outstanding on the record date for the meeting, present in person or represented by proxy at the annual meeting, constitute a quorum under Zalicus’ amended and restated bylaws. Zalicus will treat shares of common stock represented by a properly signed and returned proxy, including abstentions and broker non-votes, as present at the meeting for purposes of determining the existence of a quorum.

The affirmative vote of a majority of the outstanding common stock on the record date is required for approval of Proposal Nos. 2 and 3. The affirmative vote of a majority of the votes properly cast at the Zalicus annual meeting is required for approval of Proposal Nos. 1, 4, 6, 7 and 8 above. The affirmative vote of a plurality of the votes properly cast at the Zalicus annual meeting is required for approval of Proposal No. 5.

 

60


Table of Contents

Votes will be counted by the inspector of elections appointed for the meeting, who will separately count “For,” “Against,” “Withhold” and “Abstain” votes, and broker non-votes. Abstentions and broker non-votes are counted as present and entitled to vote for quorum purposes. Abstentions are treated as having not voted and thus will have the same effect as an “Against” vote for Proposal Nos. 2 and 3, but will have no effect on Proposal Nos. 1, 4, 5, 6, 7 and 8. Similarly, broker non-votes will have the same effect as “Against” votes with respect to Proposal Nos. 2 and 3, but will have no effect on Proposal Nos. 1, 4, 5, 6, 7 and 8. If a Zalicus stockholder does not vote by proxy or attend the annual meeting in person, it will have the same effect as a vote “Against” Proposal Nos. 2 and 3, but will not be counted in determining whether Proposal Nos. 1, 4, 5, 6, 7 and 8 is approved.

Share Ownership of Management

As of May 16, 2014, the current directors and executive officers of Zalicus collectively beneficially owned or controlled approximately 3% of the shares entitled to vote at the Zalicus annual meeting. On April 15, 2014, the following stockholders of Zalicus, collectively beneficially owning or controlling approximately 3% of the outstanding voting stock of Zalicus, entered into voting agreements pursuant to which they have agreed to vote their shares in favor of the Zalicus proposals submitted at Zalicus’ annual meeting: Mark H.N. Corrigan, M.D., the president and chief executive officer and a director of Zalicus, Justin A. Renz, the executive vice president, the chief financial officer, secretary and treasurer of Zalicus, and Sally W. Crawford, Frank Haydu, William Hunter, M.D., Michael Kauffman, M.D., and W. James O’Shea, each a director of Zalicus. The voting agreements are described in the section “Voting Agreements” on page 115.

Adjournment and Postponement

Any adjournment or postponement of the annual meeting (e.g., an adjournment required because of the absence of a quorum) would be voted upon pursuant to the discretionary authority granted by the proxy.

Voting and Revocation of Proxies

The Zalicus proxy accompanying this joint proxy statement/prospectus is solicited on behalf of the Zalicus board of directors for use at the Zalicus annual meeting.

Proxies and Voting Generally

If you are a stockholder of record and your shares are registered directly in your name, you may vote by proxy as instructed on the proxy card by mail, telephone or the Internet. Shares represented by a properly signed and dated proxy that is returned prior to the annual meeting, or shares properly voted by Internet or telephone prior to the deadline detailed and by following the instructions on the proxy card, will be voted at the annual meeting. Proxies that are properly signed and dated but that do not contain voting instructions will be voted “FOR” Proposal Nos. 1 through 5. The proxy holder may vote the proxy in his or her discretion as to any other matter that may properly come before the Zalicus annual meeting. Because Proposal Nos. 2 and 3 require the affirmative vote of a majority of the common stock of Zalicus outstanding on the record date, if you do not vote by proxy or by attending the annual meeting and voting in person, it will have the same effect as a vote “Against” Proposal Nos. 2 and 3, but will not be counted in determining whether Proposal Nos. 1, 4, 5, 6, 7 and 8 is approved.

As an alternative to voting by proxy, you may vote your shares in person at the annual meeting. If you attend the annual meeting, you may submit your vote in person, and any previous votes that you submitted by proxy will be superseded by the vote you cast in person at the annual meeting. If you plan to attend the Zalicus annual meeting and vote in person, please visit www.goodwinprocter.com/Directions.aspx for directions.

 

61


Table of Contents

If your shares are held in street name and you wish to vote those shares in person at the annual meeting, you must obtain from the broker holding your Zalicus common stock a properly executed legal proxy identifying you as a Zalicus stockholder, authorizing you to act on behalf of the nominee at the annual meeting and identifying the number of shares with respect to which the authorization is granted.

Abstentions

Zalicus will count a properly executed proxy marked “Abstain” as present for purposes of determining whether a quorum is present but abstentions are not considered votes cast. Because the affirmative vote of a majority of the outstanding shares of Zalicus common stock is required for Proposal Nos. 2 and 3, if you mark your proxy “Abstain,” or if you attend the annual meeting in person and do not vote, it will have the effect of a vote “Against” Proposal Nos. 2 and 3. Because Proposal Nos. 1, 4, 6, 7 and 8 requires the affirmative vote of a majority of the votes properly cast at the annual meeting and because Proposal No. 5 requires a plurality of the votes properly cast at the annual meeting, if you mark your proxy “Abstain,” or if you attend the annual meeting in person and do not vote, it will not be counted towards the vote totals for and will have no effect on Proposal Nos. 1, 3, 4, 5, 6, 7 and 8.

Broker Non-Votes

If your shares are held in street name, your broker will vote your shares for you only if you provide instructions to your broker on how to vote your shares. You should follow the directions provided by your broker regarding how to instruct your broker to vote your shares. Under Delaware law, if you do not instruct your broker how to vote, your votes will not be counted as your broker cannot vote your shares of Zalicus common stock without specific instructions from you. Because the affirmative vote of a majority of the outstanding shares of Zalicus common stock is required to approve Proposal Nos. 2 and 3, if you do not instruct your broker how to vote, it will have the effect of a vote “Against” Proposal Nos. 2 and 3. Because Proposal Nos. 1, 4, 6, 7 and 8 requires the affirmative vote of a majority the votes properly cast at the annual meeting and because Proposal No. 5 requires a plurality of the votes properly cast at the annual meeting, if you do not instruct your broker how to vote, your vote will not be counted and will have no effect for Proposal Nos. 1, 4, 5, 6, 7 and 8.

How to Revoke a Proxy

You may revoke your proxy at any time before it is voted by notifying the Secretary in writing, by returning a signed proxy with a later date, by transmitting a subsequent vote over the Internet or by telephone, or by attending the annual meeting and voting in person. If your stock is held in street name, you must contact your broker or nominee for instructions as to how to change your vote.

Notices to the Secretary of Zalicus should be addressed to: Secretary, Zalicus Inc., 245 First Street, 3rd Floor, Cambridge, Massachusetts 02142.

Solicitation of Proxies and Costs

The cost of solicitation of proxies will be borne by Zalicus and, in addition to soliciting stockholders by mail through its regular employees, Zalicus may request banks, brokers and other custodians, nominees and fiduciaries to solicit their customers who have Zalicus common stock registered in the names of a nominee and, if so, will reimburse such banks, brokers and other custodians, nominees and fiduciaries for their reasonable out-of-pocket costs. Zalicus has engaged MacKenzie Partners, Inc. to assist it in the distribution and solicitation of proxies at a fee not to exceed $40,000. Solicitation by Zalicus’ officers and employees may also be made of some stockholders in person or by mail, telephone, e-mail or telegraph following the original solicitation.

Assistance

If you need assistance in completing your proxy card or have questions regarding the annual meeting, please contact MacKenzie Partners, Inc. at 105 Madison Avenue, New York, NY 10016, or by telephone at (212) 929-5500 or (800) 322-2885.

 

62


Table of Contents

EPIRUS SPECIAL MEETING

This joint proxy statement/prospectus is being sent to Epirus stockholders in order to provide important information regarding the proposed merger in connection with the solicitation of proxies by Epirus’ board of directors for use at the special meeting of its stockholders and at any adjournment or postponement of the special meeting.

Date, Time and Place of the Special Meeting

Epirus will hold a special meeting of its stockholders on July 15, 2014, at 9:00 a.m., local time, at Epirus’ corporate headquarters at 699 Boylston Street, 11th Floor, Boston, MA 02116.

Matters for Consideration

At the Epirus special meeting, Epirus stockholders will be asked to consider and vote upon Proposal No. 1 to approve and adopt the merger agreement and the transactions proposed thereunder, including the merger.

Epirus stockholders may also be asked to consider and vote upon such other business as may properly come before the special meeting, or any adjournment or postponement of the special meeting. Epirus is not aware of any business to be acted upon at the special meeting, other than the proposals set forth in this joint proxy statement/prospectus. If, however, other matters incident to the conduct of the special meeting are properly brought before the special meeting or any adjournment or postponement of the special meeting, the persons named as proxies will vote in accordance with their best judgment with respect to those matters. If you vote “Against” Proposal No. 1, the proxies are not authorized to vote for any adjournment or postponement of the meeting, including for the purpose of soliciting additional proxies, unless you so indicate on the proxy card.

Board of Directors’ Recommendation

AFTER CAREFUL CONSIDERATION, THE EPIRUS BOARD OF DIRECTORS HAS APPROVED AND DECLARED ADVISABLE PROPOSAL NO. 1 TO ADOPT AND APPROVE THE MERGER AGREEMENT AND THE TRANSACTIONS PROPOSED THEREUNDER, INCLUDING THE MERGER. THE EPIRUS BOARD OF DIRECTORS BELIEVES THAT THE MERGER AGREEMENT AND THE TRANSACTIONS PROPOSED THEREUNDER, INCLUDING THE MERGER, ARE IN THE BEST INTERESTS OF EPIRUS AND ITS STOCKHOLDERS. THE EPIRUS BOARD OF DIRECTORS RECOMMENDS THAT THE EPIRUS STOCKHOLDERS VOTE “FOR” PROPOSAL NO. 1 TO APPROVE AND ADOPT THE MERGER AGREEMENT AND THE TRANSACTIONS PROPOSED THEREUNDER, INCLUDING THE MERGER.

Record Date and Voting Power

Only holders of record of Epirus common stock and preferred stock at the close of business on the record date, June 2, 2014, are entitled to notice of, and to vote at, the Epirus special meeting. Preferred stock consists of Series A preferred stock and Series B preferred stock. Each share of common stock entitles the holder thereof to one vote on each matter submitted for stockholder approval. Each share of preferred stock entitles the holder thereof to one vote for each share of common stock into which such share of preferred stock is convertible. The outstanding shares of preferred stock currently convert into common stock on a one-to-one basis.

There were 13 holders of record of common stock with 2,914,865 shares of common stock, 6 holders of record of Series A preferred stock, with 45,534,945 shares of Series A preferred stock, and 11 holders of record of Series B preferred stock, with 29,144,209 shares of Series B preferred stock, in each case, issued and outstanding at the close of business on the record date.

 

63


Table of Contents

Shares Beneficially Owned by Directors and Executive Officers

As of the record date, the directors and executive officers of Epirus beneficially owned shares of Epirus capital stock representing approximately 45% of the outstanding voting power of Epirus capital stock entitled to vote at the Epirus special meeting. On April 15, 2014, the following Epirus stockholders, beneficially owning collectively approximately 95% of the outstanding voting stock of Epirus, entered into voting agreements pursuant to which they have agreed to vote their shares in favor of the approval and adoption of the merger agreement and the transactions proposed thereunder, including the merger: Livzon, Bestow Mind Limited, 5AM Co-Investors III, L.P., 5AM Ventures III, L.P., Montreux Equity Partners V, L.P., Montreux Equity Partners IV, L.P., TPG Biotechnology Partners III, L.P., Adage Capital Management, LLC, Amit Munshi, J. Kevin Buchi, Thomas Shea and Kim Seth. The voting agreements are described in the section “Voting Agreements” on page 115.

Quorum and Vote Required

In order to conduct business at the special meeting, a quorum must be present. The presence, in person or by proxy, of the holders of a majority of the voting power of the Epirus stock entitled to vote at a meeting is necessary to constitute a quorum at the Epirus special meeting.

The approval of Proposal No. 1 requires the affirmative vote of (i) the holders of a majority of Epirus common stock and Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (ii) the holders of at least seventy percent (70%) of the outstanding shares of Epirus preferred stock, voting together as a single class (on an as-converted to common stock basis), (iii) the holders of at least seventy-five percent (75%) of the outstanding shares of Epirus Series B preferred stock and (iv) the holders of at least a majority of the outstanding shares of Epirus Series A preferred stock. If an Epirus stockholder abstains from voting, either in person or by proxy, it will have the same effect as a vote “Against” Proposal No. 1.

Votes will be counted by the inspector of elections appointed for the meeting, who will separately count “For,” “Against” and “Abstain” votes. Epirus will count a properly executed proxy marked “Abstain” as present for purposes of determining whether a quorum is present, but the shares represented by that proxy will not be voted at the special meeting. If you mark your proxy “Abstain,” or if you do not return a proxy and do not vote in person at the special meeting, it will have the effect of a vote “Against” Proposal No. 1.

Adjournment and Postponement

Any adjournment or postponement of the special meeting (e.g., an adjournment required because of the absence of a quorum) would be voted upon pursuant to the discretionary authority granted by the proxy. If the special meeting is adjourned or postponed, Epirus is not required to give notice of the time and place of the adjourned or postponed meeting if it is to take place within 30 days and if the time and place of the adjourned or postponed meeting are announced at the special meeting, unless the Epirus board of directors fixes a new record date for the special meeting.

Voting of Proxies

The Epirus proxy accompanying this joint proxy statement/prospectus is solicited on behalf of the Epirus board of directors for use at the Epirus special meeting.

 

64


Table of Contents

Proxies and Voting Generally

If you are an Epirus stockholder of record, you may vote in person at the Epirus special meeting or vote by proxy using the enclosed proxy card. Whether or not you plan to attend the meeting, you are urged to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy.

 

    To vote in person, come to the special meeting and you will be given a ballot when you arrive.

 

    To vote using the proxy card, simply mark, sign and date your proxy card and return it promptly in the envelope provided. If you return your signed proxy card to Epirus before the special meeting, Epirus will vote your shares as you direct.

All properly executed proxies that are not revoked will be voted at the Epirus special meeting and at any adjournments or postponements of the special meeting in accordance with the instructions contained in the proxy. If a holder of Epirus voting stock executes and returns a proxy and does not specify otherwise, the shares represented by the proxy will be voted “FOR” Proposal No. 1 to approve and adopt the merger agreement and to approve the merger in accordance with the recommendation of the Epirus board of directors.

Abstentions

As discussed above, Epirus will count a properly executed proxy marked “Abstain” as present for purposes of determining whether a quorum is present, but the shares represented by that proxy will not be voted at the special meeting. Because the affirmative vote of the holders of a majority of the voting power of Epirus voting stock outstanding on the record date, voting as a single class, is required to adopt and approve Proposal No. 1, if you mark your proxy “Abstain,” or if you attend the special meeting in person and do not vote, it will have the effect of a vote “Against” Proposal No. 1.

How to Revoke a Proxy

You may revoke your proxy at any time before it is voted by notifying the Secretary of Epirus in writing, by returning a signed proxy with a later date or by attending the special meeting and voting in person.

Notices to the Secretary of Epirus should be addressed to: Secretary, EPIRUS Biopharmaceuticals, Inc., 699 Boylston Street, 11th Floor, Boston, MA 02116.

Solicitation of Proxies and Expenses

Epirus is soliciting proxies for the special meeting from the Epirus stockholders and will bear the related expenses in connection with the solicitation of proxies. Epirus expects that the expenses of this special solicitation will be nominal. Certain directors, officers and employees of Epirus may solicit proxies, without additional remuneration, by mail, telephone, facsimile, e-mail and in person.

Epirus Stock Certificates

Epirus stockholders should not send stock certificates with their proxies. A letter of transmittal with instructions for the surrender of Epirus stock certificates will be mailed to Epirus stockholders separately.

Assistance

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact Edward Scott, Epirus’ director of finance and strategy, at (617) 600-3415.

 

65


Table of Contents

THE MERGER

This section of the joint proxy statement/prospectus describes the material aspects of the merger. While Zalicus and Epirus believe that the description covers the material terms of the merger, this summary may not contain all of the information that is important to you. For a more complete understanding of the merger, you should carefully read this entire joint proxy statement/prospectus, the merger agreement, the voting agreements and the other documents referred to in this joint proxy statement/prospectus and attached as appendices.

General Description of the Merger

At the effective time of the merger, Merger Sub, a wholly-owned subsidiary of Zalicus, will merge with and into Epirus, with Epirus surviving the merger as a wholly-owned subsidiary of Zalicus. The number of shares of Zalicus common stock that Zalicus will issue in connection with the merger is adjusted based upon the level of net cash that Zalicus has as of a determination date prior to the closing. On a pro forma basis, based upon the number of shares of Zalicus common stock to be issued in the merger (including in respect of outstanding Epirus options and warrants), (i) current Zalicus stockholders will own approximately 19% of the combined company and current Epirus equityholders will own approximately 81% of the combined company if Zalicus’ net cash as of a certain determination date is equal to or in excess of $12 million, (ii) current Zalicus stockholders will own approximately 17% of the combined company and current Epirus equityholders will own approximately 83% of the combined company if Zalicus’ net cash as of a certain determination date is in excess of $9 million but less than $12 million, and (iii) current Zalicus stockholders will own approximately 14% of the combined company and current Epirus equityholders will own approximately 86% of the combined company if Zalicus’ net cash as of a certain determination date is equal to or less than $9 million. For further information with respect to the number of shares of Zalicus common stock that Zalicus will issue in connection with the merger, see the information included in “Merger Agreement—Merger Consideration and Adjustment.”

Allocation of the Merger Consideration Among Epirus Equityholders

At the effective time of the merger, each outstanding share of capital stock of Epirus will be converted into the right to receive that number of shares of Zalicus common stock as determined pursuant to the exchange ratio described in the merger agreement. No fractional shares of Zalicus common stock will be issued in connection with the merger. Instead, each Epirus stockholder who otherwise would be entitled to receive a fractional share of Zalicus common stock (after aggregating all fractional shares of Zalicus common stock issuable to such holder) will be entitled to receive an amount in cash (rounded to the nearest whole cent), without interest, determined by multiplying such fraction of a share of Zalicus common stock by the closing price of a share of Zalicus common stock on The NASDAQ Capital Market on the day on which the merger is completed. For a more complete discussion of the consideration received by holders of capital stock of Epirus, please refer to “The Merger—Merger Consideration.”

A holder of Epirus preferred stock will be entitled to receive, in respect of the aggregate number of shares of Epirus preferred stock that are convertible into one share of Epirus common stock, the same number of shares of Zalicus stock that a holder of one share of Epirus common stock will be entitled to receive.

In connection with the merger, each Epirus stock option outstanding and unexercised immediately prior to the closing, whether or not vested, shall be converted into an option to purchase a number of shares of Zalicus common stock equal to the product of (a) the number of shares of Epirus common stock that were subject to such option and (b) the exchange ratio set forth in the merger agreement (with the resulting number rounded down to the nearest whole number of shares of Zalicus stock) and the per-share exercise price will be equal to the quotient of (i) the per-share exercise price of the Epirus stock option and (ii) the exchange ratio (with the resultant price rounded up to the nearest whole cent), and Zalicus will assume the 2011 Equity Incentive Plan, as amended, of Epirus and the stock options granted thereunder in accordance with their terms. Any restriction on the exercise of

 

66


Table of Contents

any Epirus stock option assumed by Zalicus will continue in full force and the term, exercisability and vesting schedule will remain unchanged as a result of the merger.

In connection with the merger, each Epirus warrant outstanding immediately prior to the closing shall be converted into a warrant to purchase a number of shares of Zalicus common stock equal to the product of (a) the number of shares of Epirus common stock that were subject to such warrant and (b) the exchange ratio set forth in the merger agreement (with the resulting number rounded down to the nearest whole number of shares of Zalicus stock), and Zalicus will assume each Epirus warrant in accordance with its terms. Any restriction on the exercise of any Epirus warrant assumed by Zalicus will continue in full force and the term and other provisions of such Epirus warrant will remain unchanged as a result of the merger.

In approving the merger agreement, the holders of Epirus preferred stock will be agreeing to accept the merger consideration as set forth in the merger agreement in satisfaction of any liquidation preferences that they may be entitled to under the Epirus amended and restated certificate of incorporation, as amended, prior to the consummation of the merger.

Background of the Merger

From time to time, Zalicus has considered various strategic business initiatives intended to strengthen its business and maximize stockholder value. As part of these evaluations, Zalicus has, from time-to-time, considered various strategic alternatives, including licensing or acquiring rights to product candidates, divesting certain product candidates or businesses, or acquisitions of or mergers with other companies with other products, product candidates or technologies. In this regard, Zalicus engaged Wedbush Securities Inc. (“Wedbush”) in the fourth quarter of 2012 to assist Zalicus in identifying potential acquisition candidates in the event that the trial results for Z160 were successful. Zalicus engaged Wedbush, among other reasons, because Wedbush is nationally recognized as having investment banking professionals with significant experience in investment banking and mergers and acquisitions transactions involving life sciences companies. While Zalicus had preliminary discussions during the fall of 2012 and the first quarter of 2013 concerning potential acquisition transactions with sixteen parties, including such companies whose technology and/or products could potentially be complementary to Zalicus’ portfolio, and entered into confidentiality agreements and exchanged information with six such parties, these discussions did not progress to the point of formal offers with respect to a potential business combination, and activities were suspended in March 2013 so Zalicus could focus on completing two Phase 2 clinical trials of its product candidate Z160 and the Phase 1b clinical trial of its product candidate Z944. The two Phase 2 clinical trials of Z160 were in neuropathic pain conditions, one in subjects with post-herpetic neuralgia, or PHN, a painful neuropathic condition resulting from an outbreak of the herpes zoster virus, otherwise known as shingles, and the other in lumbosacral radiculopathy, or LSR, a common neuropathic back pain condition resulting from the compression or irritation of the nerves exiting the lumbar region of the spine.

At meetings of the Zalicus board of directors on September 18, 2013 and October 24, 2013, members of Zalicus management summarized various scenarios relating to potential outcomes from the clinical trials of its product candidates Z160 and Z944, including various strategic actions for Zalicus to take in the event of positive or negative results from these clinical trials including taking measures to preserve cash in the event of negative clinical results. Under these scenarios, Zalicus was to explore strategic business combinations with the assistance of a financial advisor.

On November 1, 2013, Zalicus publicly announced positive results from its Phase 1b clinical trial of Z944 and its intention to evaluate and advance a modified-release formulation of Z944 into further clinical development.

On November 11, 2013, Zalicus publicly announced the results from its two Phase 2 clinical trials of Z160. Z160 did not meet the primary endpoint in either of these Phase 2 trials and based on the results, Zalicus publicly announced that it was terminating further development of Z160. On the date the Z160 Phase 2 clinical trial results were announced, the price per share of Zalicus common stock declined by over 72%, from $4.69 to $1.30.

 

67


Table of Contents

As a result of these clinical trial results, the Zalicus board of directors instructed management to proceed with the strategic plans previously discussed in this scenario, including (i) preserving cash available by discontinuing certain activities and terminating the employment of some individuals for cost reduction purposes, (ii) exploring monetizing certain financial assets such as the Exalgo royalty stream and its remaining research and development programs, (iii) potentially prepaying its indebtedness and reducing its other liabilities and (iv) continuing its cHTS business and development activities with its product candidate Z944. The Zalicus board of directors also directed the Zalicus management team to begin to explore strategic alternatives, including potential business combination transactions with the assistance of Wedbush and to make a formal recommendation to the Zalicus board of directors regarding the future operations of Zalicus at the December 9, 2013 meeting of the board of directors.

On November 14, 2013, Dr. Mark Corrigan, chief executive officer of Zalicus, Mr. Justin Renz, executive vice president and chief financial officer of Zalicus, and Mr. Jason Cole, executive vice president, corporate development and general counsel of Zalicus met with a representative of Wedbush to discuss a process to reach out to potential counterparties for a potential business combination transaction.

On November 20, 2013, Dr. Corrigan, Mr. Renz and Mr. Cole met with representatives of Wedbush to further discuss the process for reaching out to potential counterparties for a potential business combination transaction, and identified a list of 110 companies, based on criteria established by management after consultations with the Zalicus board of directors. These criteria focused on private companies in the biopharmaceutical space which were domiciled in the United States. Given Zalicus’ status as a publicly-traded NASDAQ-listed company, private parties in the biopharmaceutical space domiciled in the United States were viewed as the most likely to enter into a business combination transaction and to provide the most value to Zalicus’ stockholders.

On November 20, 2013, Wedbush began to formally market to outside parties Zalicus’ interest in exploring a possible business combination. In this process, Wedbush contacted the 110 potential target companies identified by Wedbush and the Zalicus management team to gauge their preliminary interest in a potential strategic business combination with Zalicus. Interested companies were invited to make non-confidential presentations to Zalicus represented by a combination of Dr. Corrigan, Mr. Renz and Mr. Cole, with representatives of Wedbush in attendance. After these presentations, Zalicus would invite interested parties to enter into a written confidentiality agreement to allow for further confidential exploratory discussions, potential negotiations and mutual due diligence.

On December 9, 2013, at a regularly scheduled meeting, management provided the Zalicus board of directors with an update on their efforts to: (i) preserve cash and reduce operating expenses, which efforts included evaluation of Zalicus’ financial position and ongoing efforts to preserve cash by potentially shutting down clinical programs, decreasing operational and administrative spending and reducing the size of the employee workforce; (ii) explore monetizing certain financial assets such as the Exalgo royalty steam and its remaining research and development programs, which efforts, as of such date, involved preliminary discussions with the ultimate counterparty; (iii) continue payment of Zalicus’ indebtedness and reduce its other liabilities, which efforts included discussions with Zalicus’ lender; and (iv) continue its cHTS business and development activities with its product candidate Z944, as discussed below. Zalicus management also presented to the board of directors its preliminary assessment of a variety of strategic alternatives that Zalicus could pursue, including: (a) continuing as an independent company focused exclusively on its ion channel programs such as Z944, (b) continuing and potentially expanding its cHTS services business, (c) in-licensing additional product candidates for development, and/or (d) having Wedbush assist the company in the evaluation and potential execution of a business combination transaction to maximize stockholder value. The board of directors and management of Zalicus discussed the advantages and disadvantages of various alternatives and the potential value to stockholders of liquidating Zalicus and operating as an independent company focused on its ion channel programs such as Z944. With respect to Zalicus’ ion channel programs, including specifically Z944, the Zalicus board considered the early stage of the applicable technology, and the significant cash outlay that would be

 

68


Table of Contents

required to develop and produce the product and the need to raise additional capital and the uncertain capital markets, which Zalicus historically had relied upon to raise additional financing to fund its product development efforts, in connection with the trials for this product. At the conclusion of the meeting, based on Wedbush’s significant investment banking and advisory experience in the life sciences industry and knowledge of Zalicus’ business, the Zalicus board of directors approved the continued engagement of Wedbush to act as financial advisor to Zalicus to work with management to explore various strategic alternatives for Zalicus, including potential business combination transactions. The Zalicus board was willing to consider a variety of transaction structures that would enhance value for Zalicus’ stockholders, but given the negative results of the Phase 2 trial of Z160 and the remaining operating assets of Zalicus, Wedbush advised that Zalicus’ status as a publicly-traded and NASDAQ-listed company was among its most attractive features for potential buyers, and therefore that a strategic alternative transaction structured as a merger of Zalicus with a private company, with Zalicus’ stock being the consideration in the transaction, would be likely to result in the realization of the greatest value by Zalicus’ stockholders.

Before and after the December 9, 2013 meeting of the Zalicus board of directors and throughout the strategic review process, members of Zalicus management and its board of directors consulted with representatives from Goodwin Procter LLP, the company’s outside corporate counsel (“Goodwin Procter”), to discuss certain legal aspects of the process and the board’s fiduciary duties.

Between November 25, 2013 and February 12, 2014 (prior to the February 14 deadline for receipt of non-binding indications of interest described below), members of Zalicus management and Wedbush met or held teleconference calls with the management teams of 40 of the originally identified 110 companies in order to gain an understanding of each company’s background, their respective drug candidates, regulatory status, market opportunities, intellectual property position, timelines, and any capital requirements. All of these companies were (i) private companies in the biopharmaceutical space that were domiciled in the United States, (ii) viewed as likely to be interested in Zalicus’ status as a publicly traded NASDAQ listed company and (iii) viewed as providing the most potential trading value to Zalicus’ stockholders. All of the initial management meetings were held before the initial bid deadline of February 14, 2014, as described below.

As part of this series of meetings with potential counterparties, on December 16, 2013, Mr. Amit Munshi, the chief executive officer of Epirus, and Mr. Thomas Shea, the chief financial officer of Epirus, met with Dr. Corrigan, Mr. Renz and Mr. Cole to present a corporate overview of Epirus. During the conversation, Mr. Munshi described Epirus’ transactional interest in Zalicus and discussed the next steps to be taken in the evaluation process of a potential merger with Zalicus. Dr. Corrigan, Mr. Renz and Mr. Cole described the transaction and diligence process from Zalicus’ perspective to Messrs. Munshi and Shea.

On December 20, 2013, Mr. Cole and Mr. Shea had a teleconference to discuss various due diligence matters in connection with evaluating the potential merger, including without limitation, a description of Epirus’ business and product development plans.

On January 6, 2014, a representative of Leerink Swann Inc. (“Leerink”), Epirus’ financial advisor, spoke with Mr. Renz and Mr. Cole regarding a potential business combination transaction between Zalicus and Epirus including without limitation, a background description of Epirus’ business and product candidate platform.

On January 7, 2014, Dr. Corrigan met with Mr. Munshi from Epirus to discuss their respective businesses and the potential for a business combination transaction between Zalicus and Epirus, including without limitation, a description of Epirus’ business and product development plans.

On January 8, 2014, management provided the Zalicus board of directors with an update on the ongoing business activities of Zalicus, including proposed terms of a sale of its rights to future royalties on net sales of Exalgo to Mallinckrodt plc and the planned prepayment of its outstanding indebtedness with Oxford Finance LLC and its activities with Wedbush to explore a potential business combination transaction. Representatives of

 

69


Table of Contents

Goodwin Procter attended the meeting and provided advice regarding legal aspects of the process, including the fiduciary duties of the directors. During the meeting, given the progress being made to identify various potential counterparties to a potential business combination transaction, Wedbush recommended a two-step strategic review process, with an initial phase involving Wedbush issuing a process letter to parties to solicit non-binding initial indications of interest by February 14, 2014, with such indications of interest summarizing the counterparty’s business plan, proposed ownership split of the combined company, estimated financing needs, approval and diligence requirements, availability of audited December 31, 2013 financial statements and other matters. Following the receipt of indications of interest, the Zalicus board of directors and management would then review the indications of interest to focus on conducting simultaneous two-way diligence with selected parties and soliciting binding offers for a business combination transaction with Zalicus. The Zalicus board of directors endorsed this process and asked Zalicus management and Wedbush to prepare and issue the process letter to interested parties.

Beginning on January 9, 2014, Wedbush began to provide the process letter to potential counterparties, including Epirus, in each case indicating the deadline for submitting non-binding indications of interest of February 14, 2014. Between January 9, 2014 and February 12, 2014, Wedbush provided process letters to 19 companies while Zalicus continued to meet with potential counterparties prior to the February 14, 2014 deadline. Based on Wedbush’s and Zalicus’ diligence and discussions with potential strategic parties to date, these 19 companies were a subset of the 40 U.S. domiciled private companies in the biopharmaceutical space that Zalicus management and Wedbush had spoken with and determined were the most likely to be interested in a merger with a public company like Zalicus and based on an analysis on their products and/or technology were viewed as providing the greatest potential value to Zalicus’ stockholders.

On January 23, 2014, Dr. Corrigan, Mr. Renz, and Mr. Cole had a telephone call with Mr. Munshi and Mr. Shea to discuss additional diligence items, the process letter and the potential for Epirus to submit a non-binding indication of interest to Zalicus.

On January 24, 2014, Leerink, on behalf of Epirus, submitted to Wedbush the first non-binding indication of interest for a potential business combination with Zalicus. The indication of interest indicated that following a transaction with Epirus the stockholders of Zalicus would hold, on a fully diluted basis, approximately 15.4% of the combined company. In addition, this proposal indicated that Epirus expected Zalicus to have $12 million in net cash as of the closing of the proposed transaction. The Epirus indication of interest contemplated that the board of directors of the combined company would consist of seven individuals, of which five would be filled by directors designated by Epirus’ stockholders prior to the proposed transaction, one would be filled by Dr. Corrigan and one would be designated by stockholders of Zalicus and Epirus prior to the proposed transaction. The offer described in the Epirus indication of interest was not conditioned upon the grant of any exclusivity period.

On January 27, 2014, Zalicus management provided the Zalicus board of directors with an update on the ongoing business activities of Zalicus, including proposed terms of a sale of its rights to future royalties on net sales of Exalgo to Mallinckrodt plc and the planned prepayment of its outstanding indebtedness with Oxford Finance LLC. These transactions were approved by the Zalicus board of directors at the meeting. Zalicus management also provided the Zalicus board of directors with an update on the process to solicit indications of interest for a potential business combination transaction. Representatives of Goodwin Procter attended the meeting and provided advice regarding legal aspects of the process and the board’s fiduciary duties. At the meeting, the Zalicus board of directors formed a special Transaction Committee, consisting of the independent directors Mr. Frank Haydu and Ms. Sally Crawford, who were experienced with evaluating strategic transactions as evidenced further by Mr. Haydu’s role in connection with the combination of Zalicus and Neuromed Pharmaceuticals Inc. in 2009. The Transaction Committee was expected to work with Zalicus management, the Zalicus board of directors, Wedbush and Goodwin Procter throughout the process and was charged with assisting management in identifying parties for a potential business combination, evaluating strategic transactions,

 

70


Table of Contents

negotiating with parties in this process, and making recommendations to the Zalicus board of directors about the advisability of various courses of action.

On January 29, 2014, a representative of Wedbush spoke with a representative of Leerink regarding the indication of interest that Leerink had submitted on behalf of Epirus on January 24, 2014 and certain valuation matters and assumptions.

On January 31, 2014, Zalicus sold all rights to future royalties on net sales of Exalgo to Mallinckrodt for $7.2 million in cash and prepaid the remaining $8.6 million outstanding under its term loans with Oxford Finance LLC, eliminating all future principal and interest payments to Oxford.

On February 7, 2014, the Transaction Committee held its first meeting and received an update from Zalicus management and Wedbush regarding the process for soliciting non-binding indications of interest, which were expected to be received by February 14, 2014, and representatives of Goodwin Procter attended the meeting and provided advice regarding legal aspects of the process and related timing matters. Zalicus’ management summarized the businesses of the various companies participating to date in the process and provided its preliminary perspective of these companies. Given the proximity of the February 14, 2014 deadline for receiving non-binding indications of interest, the Transaction Committee agreed to schedule its next meeting for February 18, 2014 to review the indications of interest received by Zalicus.

On February 13, 2014, Epirus retained Leerink to act as its financial advisor in connection with a potential business combination transaction with Zalicus.

By February 18, 2014, of the 19 companies who received process letters, Zalicus received 14 non-binding indications of interest, including one from Epirus. All 14 indications of interest were provided to the Zalicus board of directors and the Transaction Committee in advance of its February 18, 2014 meeting.

On February 18, 2014, the Transaction Committee held a meeting where it received an update from Zalicus management and Wedbush regarding the process and the receipt of the 14 non-binding indications of interest from various counterparties. Representatives of Goodwin Procter attended the meeting and provided advice regarding legal aspects of the process, related timing matters and the fiduciary duties of the directors. Representatives of Wedbush provided financial analysis regarding each of the indications of interest. Zalicus management provided a management perspective on the companies that had expressed interest and their attractiveness as potential counterparties. The Transaction Committee reviewed summaries of the terms of each of the indications of interest and discussed each company and the terms of their offer. As a result of these discussions and consideration of advice from Wedbush, the Transaction Committee eliminated four companies from consideration after determining that the other ten bids represented the most attractive potential offers to provide long term value to Zalicus’ stockholders. The Transaction Committee then instructed Zalicus management to conduct additional due diligence on the counterparties and asked Wedbush to have additional discussions with the counterparties regarding the terms of their indications of interest. Zalicus management and Wedbush would then provide a status update at the next board meeting scheduled for February 26, 2014.

From February 18, 2014 through February 25, 2014, members of Zalicus management and representatives of Wedbush contacted the ten companies that had been identified by the Transaction Committee as representing the most attractive potential offers, performed additional diligence on those potential counterparties and clarified certain items in the indications of interest provided by those potential counterparties.

On February 26, 2014, Zalicus held a regular meeting of its board of directors, during which Zalicus management provided a general update on the ongoing business activities of Zalicus. Representatives of Wedbush and Goodwin Procter attended the meeting and participated in an update by Zalicus management and the Transaction Committee regarding its recent activities and the review and evaluation of the non-binding

 

71


Table of Contents

indications of interest received by Zalicus. The Transaction Committee noted that, between February 18 and February 26, 2014, two parties had revoked their non-binding indications of interest and withdrawn from the process as a result of disagreements over the potential valuation of Zalicus with respect to a proposed transaction with the counterparties. The Zalicus board of directors then reviewed summaries of the terms of each of the remaining eight non-binding indications of interest, received strategic advice and management perspective on the potential counterparties, and discussed each counterparty and the terms of their offer. Four of the eight non-binding indications of interest were in preliminary form, reflecting that the potential counterparties were not sufficiently prepared to commit to Zalicus’ timing for the consummation of a proposed business combination and/or were submitted by potential counterparts that did not have technology or product candidates that would provide as high of a projected value as the other four remaining potential counterparties and the other four companies were viewed as more attractive potential counterparties due to their technologies or product candidates and therefore potentially greater value for a combined company. As a result of these discussions and receiving advice from Wedbush, the Zalicus board of directors selected the four remaining companies (Epirus, Company A, Company B and Company C). All of these companies were (i) private companies in the biopharmaceutical space that were domiciled in the United States, (ii) interested in Zalicus’ status as a publicly traded NASDAQ listed company and (iii) viewed as providing the most potential trading value to Zalicus’ stockholders.

Following this meeting, Dr. Corrigan and representatives of Wedbush informed the four companies selected by the Zalicus board of directors, all of which had previously entered into confidentiality agreements with Zalicus, of the next phase of the process, which would involve the counterparties solidifying their financial positions pre-closing by raising additional capital, submitting a letter of intent for a potential business combination transaction along with a mark-up of a preliminary draft merger agreement and the commencement of confirmatory mutual due diligence. Company C withdrew from the process shortly thereafter.

On February 27, 2014, Mr. Munshi made a presentation to the Zalicus management team and certain members of the Zalicus board of directors, including Mr. Haydu and Mr. W. James O’Shea, which included a discussion on how a business combination transaction of the two companies could create a publicly traded, global biosimilar enterprise focused on improving patient access to important medicines that could create significantly more long-term value for Zalicus’ stockholders.

On March 5, 2014, the Company A management team met with the Zalicus management team and certain members of the Zalicus board of directors, including Ms. Crawford and Mr. O’Shea, to discuss Company A’s corporate strategy, Company A’s interest in Zalicus and general aspects of a possible business combination transaction between the two companies. Subsequent to March 5, 2014, Zalicus commenced a due diligence investigation of Company A, including its proposed products, regulatory matters and intellectual property, and gave access to Company A and its advisors to Zalicus’ electronic data room, which contained legal, regulatory, financial and other documents relating to Zalicus and its business. Also subsequent to March 5, 2014, Zalicus’ management and Company A’s management discussed on several occasions in person and via telephone the status of each other’s respective due diligence investigations, the material terms of a possible transaction between the two parties; including without limitation the net cash requirement for Zalicus as a closing condition, a potential equity ownership split and financing requirements of Company A, and the status and timing of a possible transaction between the two parties.

On the evening of March 6, 2014, Wedbush sent final bid letters and the preliminary draft merger agreement to each of Company A, Company B and Epirus, which outlined the procedures and guidelines for submitting a final term sheet for a business combination with Zalicus. The bid letters asked that interested bidding companies address in final form similar criteria specified in the non-binding indication of interest. The deadline for submitting the final bids was set as March 13, 2014. The three companies were also asked to submit comments to the preliminary draft merger agreement when submitting the final bid letter.

On March 7, 2014 the Transaction Committee, members of Zalicus’ management and representatives of Goodwin Procter and Wedbush met by teleconference. Dr. Corrigan provided an update to the Transaction

 

72


Table of Contents

Committee with respect to Zalicus’ discussions with Epirus, Company A and Company B and development with the strategic alternatives review process. Dr. Corrigan also discussed with the Transaction Committee the information obtained by management of Zalicus with respect to the operations and business of each of Epirus, Company A and Company B.

On March 10, 2014, Company A provided Dr. Corrigan and Mr. Renz financial information about Company A, and disclosed the fact that Company A did not have audited financial statements for the year ended December 31, 2013. Company A also provided Zalicus with an anticipated timeline for a proposed transaction that indicated that Company A would not be able to complete an audit of its financial statements until the end of May 2014, the proposed merger agreement between the parties would not be executed until the end of April 2014, and that a Form S-4 for a proposed transaction between Zalicus and Company A would not be filed until the beginning of June 2014. Under this timeline, this proposed transaction would not close until the end of August 2014 at the earliest. Because of Zalicus’ cash position and the increasing difficulties facing Zalicus in keeping its existing businesses intact, this timeline made Company A less attractive as a potential bidder.

On March 11, 2014, the management of Company B made a presentation to Dr. Corrigan and Mr. Renz and certain members of the Zalicus board of directors, including Mr. O’Shea, Ms. Crawford and Dr. Kauffman, regarding the business and prospects of Company B, Company B’s interest in Zalicus and general aspects of a possible business combination transaction between the two companies.

On March 11, 2014, in connection with Zalicus’ clinical and intellectual property diligence review of Company B, Dr. Corrigan and Ms. Margaret Lee, the Vice President of Research and Translational Medicine of Zalicus, participated in a teleconference call with a European Union principal investigator for Company B to discuss Company B’s clinical progress for its lead product candidate and the status of Company B’s European ownership rights to its lead product candidate.

On March 12, 2014, the Epirus management team met with Dr. Corrigan and Mr. Renz to discuss their respective businesses and Epirus’ corporate growth plan.

On March 13, 2014, Leerink, on behalf of Epirus, sent to Wedbush and Zalicus’ management a revised indication of interest and a mark-up of the preliminary draft merger agreement pursuant to which Epirus proposed a merger with Zalicus following which the stockholders of Zalicus would hold, on a fully diluted basis, approximately 18% of the combined company. In addition, this proposal indicated that Epirus expected Zalicus to have $12 million in net cash as of the closing of the proposed transaction. The Epirus indication of interest indicated that the pro forma ownership of the combined company would be adjusted up or down depending upon the actual amount of net cash of Zalicus as of the closing of the proposed transaction and upon the result of financing efforts that Epirus would undertake prior to the proposed transaction. The Epirus indication of interest contemplated that the board of directors of the combined company would consist of seven individuals. The Epirus indication of interest contemplated that the board of directors of the combined company would consist of seven individuals, of which five would be filled by directors designated by Epirus’ stockholders prior to the proposed transaction, one would be filled by Dr. Corrigan and one would be designated by stockholders of Zalicus and Epirus prior to the proposed transaction. After Zalicus received Epirus’ indication of interest, Epirus proposed that Dr. Corrigan serve as the chairman of the board of directors of the combined company. The offer described in the Epirus indication of interest was not conditioned upon the grant of any exclusivity period.

On March 13, 2014, Company B sent an updated proposal and a mark-up of the preliminary draft merger agreement to Zalicus. The Company B proposal contemplated a stock-for-stock merger transaction pursuant to which Zalicus stockholders would own up to 38.5% of Zalicus on a pro forma, fully converted to common stock basis. This was an increase from Company B’s original preliminary indication of interest that provided for Zalicus’ stockholders to own 28% of the combined company. In addition, for each $1 million of net cash in excess of $16 million provided by Zalicus as of the closing of a proposed transaction with Company B, the ownership percentage of Zalicus stockholders would be increased by 1%, up to a maximum ownership percentage of 46.5% in the combined company for net cash of $24 million or greater at the closing of the proposed transaction.

 

73


Table of Contents

Company B’s original preliminary indication of interest required Zalicus to have $15M in net cash as a condition to a proposed transaction. The Company B proposal also outlined the additional financing of the combined company that would be required for future development opportunities. The proposal also contemplated a seven-person board of directors of the combined company, with Company B designating five of the directors and two of the designees coming from Zalicus’ current board of directors. In addition, the Company B proposal requested exclusivity for a period of approximately 6 weeks.

On March 14, 2014, in connection with Zalicus’ continued clinical and intellectual property diligence review of Company B, Dr. Corrigan had a telephone call with the United States principal investigator for Company B to discuss Company B’s clinical progress for its lead product candidate and the status of Company B’s ownership rights to its lead product candidate.

Throughout the day on March 14, 2014, Dr. Corrigan and Mr. Renz, Mr. Munshi and Mr. Shea had various telephone calls to discuss Zalicus’ current cash position, Zalicus’ projected use of cash through the remainder of fiscal year 2014 and the status of the audit of Epirus’ financial statements for fiscal years ending as of December 31, 2012 and December 31, 2013. Mr. Munshi and Mr. Shea provided updates regarding the status of the audit of Epirus’ financial statements and indicated that Epirus would be ready to sign a proposed merger agreement during April 2014, consistent with Zalicus’ desired timeline, and that the completion of its audit would not cause a delay in the filing of a Form S-4 for a proposed business combination transaction between the parties. In addition, the parties discussed the fact that Epirus’ indication of interest had assumed that Zalicus would have at least $12 million in net cash as of closing of the proposed transaction, and that depending on the closing costs of the proposed transaction and the potential success of efforts of Zalicus to monetize certain of its assets, the amount of net cash at closing could be substantially less than that. The parties discussed in principle a structure that provided for an adjustment in the relative ownership percentages of current Zalicus stockholders and current Epirus equityholders in the combined company depending upon the level of net cash of Zalicus, upon the following terms: (i) current Zalicus stockholders would own approximately 20% of the combined company if Zalicus’ net cash at closing would be equal to or in excess of $12 million, (ii) current Zalicus stockholders would own approximately 18% of the combined company if Zalicus’ net cash at closing would be in excess of $9 million but less than $12 million, and (iii) current Zalicus stockholders would own approximately 15% of the combined company if Zalicus’ net cash at closing would be equal to or less than $9 million. Dr. Corrigan indicated that he would present this structure at the meeting of the Zalicus board of directors to be held on March 17, 2014.

On March 17, 2014, the Zalicus board of directors held a special meeting during which the Zalicus management team provided an update with respect to Zalicus’ business and discussed the status of its review of potential strategic alternatives. Also in attendance at this special meeting were representatives of Goodwin Procter and Wedbush. Dr. Corrigan provided an update to the Zalicus board of directors with respect to the progress for Zalicus’ strategic alternatives review process, including his discussion with Mr. Munshi regarding the proposed ownership percentage split for a proposed business combination transaction with Epirus depending upon Zalicus net cash at closing, a discussion regarding potential financing strategies for each of Epirus, Company A and Company B, diligence efforts to date and potential timelines for proposed transactions with each of Epirus, Company A and Company B. Zalicus’ management and representatives of Wedbush summarized for the board their review and assessment of Zalicus’ strategic alternatives, including a review of whether it would be in the best interest of Zalicus and its stockholders for Zalicus to continue as an independent company focusing on its existing business including the development of Z944, combine with any one of the interested private companies, sell Zalicus’ assets or liquidate Zalicus. The Zalicus board of directors acknowledged Company A’s continued interest in a proposed business combination transaction with Zalicus, but discussed the fact that Company A had not submitted comments to the preliminary draft merger agreement or a letter of intent. In addition, the Zalicus board of directors discussed the proposed timeline that Company A had provided to Zalicus, under which Company A would not complete an audit of its financial statements until the end of May 2014, the proposed merger agreement between the parties would not be executed until the end of April 2014, and a Form S-4 for a proposed business combination transaction between Zalicus and Company A would not be filed until the beginning of June 2014. Under this timeline, a proposed transaction with Company A would not close until

 

74


Table of Contents

the end of August 2014 at the earliest, and the Zalicus board of directors had significant concerns about Zalicus’ cash position and the increasing difficulties facing Zalicus in keeping its existing businesses intact. In addition, the Zalicus board of directors discussed Company B’s proposal and the proposed terms for a potential business combination transaction with Zalicus. The Zalicus board of directors acknowledged that Company B’s proposal offered Zalicus’ stockholders a larger ownership percentage of the combined company, but after receiving the advice of Wedbush regarding proposed valuations, the Zalicus board of directors determined that, based on the unproven nature of Company B’s technology and proposed products, the anticipated longer period of time it would take Company B to get to market with its products, and the likely per share market prices of the shares of a combined company of Zalicus and Company B, the resulting value of a combined company composed of Zalicus and Company B was not likely to be as high as the projected value of a combined company composed of Zalicus and Epirus. After an extensive discussion of the potential alternatives, and considering the anticipated costs, timing and risks associated with Zalicus products in development and/or in-licensing or acquiring additional technologies or product candidates, and the uncertain capital markets, which Zalicus historically had relied upon to raise additional financing to fund its product development efforts, it was the consensus of the Zalicus board of directors that a combination of Zalicus and Epirus would create greater long-term value for Zalicus stockholders than continuing as an independent, stand-alone company. In addition, the Zalicus board of directors concluded that a potential transaction with Epirus was superior to all of the other strategic alternative transactions available to Zalicus, including the proposed business combination transaction with Company B. The Zalicus board of directors believed the Epirus’ proposal offered the most attractive terms for a transaction because of Epirus’ pipeline of biosimilar monoclonal antibodies and therapeutic proteins for commercialization in global markets. After considering the financial advice received from Wedbush and reviewing data on trading prices of comparable companies, the board believed that the merger with Epirus would create a publicly traded, global biosimilar enterprise focused on improving patient access to important medicines that would create significantly more long-term value for Zalicus’ stockholders than any of the other proposals that board had received. The Zalicus board of directors also directed the Zalicus management team to continue to pursue potential transactions with Company A and Company B, in addition to Epirus, in order to provide Zalicus with maximum flexibility in the event that it could not come to an agreement with Epirus on the terms of the proposed business combination transaction.

Following the meeting of the Zalicus board of directors, during the evening of March 17, 2014, Dr. Corrigan called Mr. Munshi of Epirus to indicate that Zalicus was willing to continue its discussions with Epirus regarding a proposed business combination transaction and negotiate and finalize the terms of the proposed merger agreement, consistent with the proposed relative ownership percentage terms that Dr. Corrigan, Mr. Renz, Mr. Munshi and Mr. Shea had discussed on March 14, 2014. Dr. Corrigan indicated that Zalicus would not be willing to grant exclusivity to Epirus at this time, but that the parties should continue to perform their respective due diligence investigations of each other in order to move the transaction forward as quickly as possible.

On March 18, 2014, representatives of Goodwin Procter, as legal counsel to Zalicus, and representatives of Zalicus were granted access to the electronic data room of Epirus. From March 18, 2014 to April 14, 2014, Zalicus’ and Epirus’ respective management teams performed additional due diligence. During such period, several teleconference calls were held between Zalicus’ management and advisors and Epirus’ management and advisors to discuss various aspects of their respective due diligence investigations.

On March 18, 2014, Dr. Corrigan called Mr. Munshi and discussed Epirus’ financing plans, including the proposed size of the financing and the timeline for completion of such financing. These discussions were focused on understanding the current valuation of Epirus and to ensure that the surviving company would have sufficient resources to conduct its business. Dr. Corrigan also requested that he have an opportunity to meet with the Epirus board of directors prior to the execution of a merger agreement between Zalicus and Epirus. In addition, on March 18, 2014, Dr. Corrigan called the Chief Executive Officer of Company B and discussed with him how Company B could improve its proposal, but indicated that Zalicus was going to focus its efforts on negotiating a definitive transaction with another party. Following that discussion, in the evening on March 18, 2014, the Chief Executive Officer of Company B sent an email to Dr. Corrigan indicating that Company B would pursue other opportunities.

 

75


Table of Contents

On March 24, 2014, the Transaction Committee, members of Zalicus’ management and representatives of Goodwin Procter and Wedbush met by teleconference. Dr. Corrigan provided an update to the Transaction Committee regarding Zalicus’ negotiations with Epirus regarding the terms of the proposed merger agreement and related documents. Dr. Corrigan also updated the Transaction Committee with respect to Epirus’ proposed financing plans to be completed prior to the execution of any merger agreement between Zalicus and Epirus.

On March 25, 2014, the Chief Executive Officer of Company B contacted Dr. Corrigan by telephone and followed up with an email to Dr. Corrigan to reaffirm Company B’s interest in a potential business combination transaction with Zalicus. Dr. Corrigan thanked him for his continued interest in Zalicus and indicated that the company was still involved in active negotiations with another party and promised to reach out to him if that changed.

On March 26, 2014, Dr. Corrigan and Mr. Renz met with Mr. Munshi and Mr. Shea to discuss process, administrative matters and the proposed schedule for signing a definitive merger agreement and closing the proposed transaction.

On March 28, 2014, the Transaction Committee, management of Zalicus and representatives of Goodwin Procter and Wedbush met by teleconference. Dr. Corrigan provided an update to the Transaction Committee regarding Zalicus’ negotiations with Epirus regarding the terms of the proposed merger agreement and related documents.

Between March 17, 2014 and April 15, 2014, Zalicus and Goodwin Procter, on one hand, and Epirus and Latham & Watkins, outside corporate counsel to Epirus (“Latham”), on the other hand, exchanged numerous drafts of the merger agreement and its various exhibits, including the form voting agreements to be entered into by certain officers, directors and stockholders of Zalicus and Epirus. Throughout this period, representatives of Zalicus, Goodwin Procter, Epirus and Latham engaged in negotiations regarding the terms of the proposed merger agreement and related documents. These discussions focused on, among other things, the various stockholder proposals required for the transaction by the stockholders of Zalicus, the definition and calculation of net cash of Zalicus, the relative ownership percentages of current Zalicus stockholders and current Epirus equityholders in the combined company and the levels of Zalicus net cash at closing required to achieve those relative ownership percentages, the composition of the board of directors of the combined company, closing conditions and the termination fees to be paid by each party. Throughout this period, representatives of Zalicus and Epirus and their respective advisors continued their mutual due diligence review.

On April 1, 2014, Mr. Renz and Mr. Shea discussed the definition of “Net Cash” in the draft merger agreement and agreed to the components of the definition, including the list of the potential accrued expenses to be excluded from the calculation of Zalicus’ net cash.

On April 2, 2014, Mr. Renz and Mr. Shea discussed the definition of “Adjusted Outstanding Phoenix Shares” and agreed to the components of the definition, including the number of options to purchase shares of Zalicus common stock and restricted stock units of Zalicus to be included in the calculation of Adjusted Outstanding Phoenix Shares.

On April 3, 2014, Dr. Corrigan met with Scott Rocklage, a director of Epirus, to discuss the proposed transaction between Zalicus and Epirus and the favorable support of Dr. Rocklage for the merger.

On April 3, 2014, Mr. Renz and Mr. Shea discussed the condition to Epirus’ obligation to close the proposed transaction related to Zalicus’ minimum level of net cash and, based on Zalicus’ current cash balance and projected expenses and liabilities through an anticipated closing date of a proposed transaction in the third quarter of 2014, agreed to $3 million as the minimum threshold.

On April 4, 2014, the Transaction Committee, management of Zalicus and representatives of Goodwin Procter and Wedbush met by teleconference. Dr. Corrigan provided an update to the Transaction Committee

 

76


Table of Contents

regarding Zalicus’ negotiations with Epirus regarding the terms of the proposed merger agreement and related documents. In particular, Mr. Renz reviewed with the Transaction Committee the definition of “Net Cash” that Zalicus and Epirus had negotiated and the agreed-upon minimum net cash threshold of $3 million that the parties agreed would be a condition to Epirus’ obligation to close the proposed transaction.

On April 8, 2014, Mr. Shea contacted Mr. Renz to discuss the calculation of the proposed relative ownership percentages of current Zalicus stockholder and current Epirus equityholders in the combined company, including, without limitation, the number of Zalicus securities and the number of Epirus securities that were to be included in the calculation to determine the number of shares of Zalicus common stock to be issued in connection with the proposed transaction to holders of Epirus capital stock. In particular, Mr. Shea and Mr. Renz discussed the number of Epirus options to purchase shares of common stock that were to be included as part of such calculation. This discussion focused on whether the shares to be issued to Epirus’ employees upon exercise of stock options after the merger should be included in the percentage of shares to be issued to Epirus in connection with the merger. Mr. Shea and Mr. Renz agreed to discuss the matter with their respective advisors.

On April 8, 2014, Dr. Corrigan had a telephone discussion with Daniel Turner, a director of Epirus, to discuss the proposed transaction between Zalicus and Epirus and the favorable support of Mr. Turner for the merger.

On April 9, 2014, Messrs. Renz and Shea and representatives of Goodwin Procter, Latham and Wedbush had multiple telephone discussions regarding the calculation of the number of shares of Zalicus common stock that were to be issued in connection with the proposed transaction to holders of Epirus securities, including, without limitation, whether the shares to be issued to Epirus’ employees upon exercise of stock options after the merger should be included in the percentage of shares to be issued to Epirus in connection with the merger. Based on Epirus’ method of calculating the number of shares of Zalicus common stock to be issued in connection with the merger and the resulting exchange ratio and assuming that Zalicus had net cash equal to or less than $9 million at the time of closing, the stockholders of Zalicus would own approximately 11% of the combined company. Dr. Corrigan and Mr. Renz were unwilling to accept Epirus’ position with respect to such calculations.

On April 9, 2014, Dr. Corrigan had a telephone discussion with Geoffrey Duyk, a director of Epirus, to discuss the proposed transaction between Zalicus and Epirus and the favorable support of Dr. Duyk for the merger.

On April 10, 2014, after discussions between Mr. Renz and Mr. Shea and between Dr. Corrigan and Mr. Munshi, Dr. Corrigan proposed that (i) current Zalicus stockholders would own approximately 19% of the combined company if Zalicus’ net cash at closing would be equal to or in excess of $12 million, (ii) current Zalicus stockholders would own approximately 17% of the combined company if Zalicus’ net cash at closing would be in excess of $9 million but less than $12 million, (iii) current Zalicus stockholders would own approximately 14% of the combined company if Zalicus’ net cash at closing would be equal to or less than $9 million and (iv) for purposes of calculating the relative ownership percentages of current Zalicus stockholders and current Epirus equityholders in the combined company, all outstanding Epirus options and warrants would be considered to be included on the side of current Epirus equityholders. After further negotiations, Mr. Munshi accepted Dr. Corrigan’s proposal, provided that Zalicus agreed to recommend that its stockholders increase the amount of shares eligible to be issued under its option plan by 3,000,000 shares. Epirus also asked that stockholder approval of the option plan amendment be a condition to closing the transaction. Dr. Corrigan and Mr. Munshi agreed to consult with their respective boards and advisors concerning the proposed compromise.

On April 11, 2014, the Transaction Committee, management of Zalicus and representatives of Goodwin Procter and Wedbush met by teleconference. Dr. Corrigan and Mr. Renz reviewed with the Transaction Committee the negotiations that had occurred in the days leading up to the Transaction Committee meeting regarding the relative ownership percentages of current Zalicus stockholders and current Epirus equityholders in the combined company. The Transaction Committee discussed in detail the negotiations that had taken place between the parties regarding the relative ownership percentages in the combined company, and the Transaction

 

77


Table of Contents

Committee endorsed the revised Epirus proposal and authorized the parties to finalize the documentation for the proposed transaction. In addition, Dr. Corrigan provided an update regarding Epirus’ proposed Series B preferred stock financing, which was anticipated to close prior to or simultaneously with the execution of the proposed merger agreement between the parties.

On April 11, 2014, representatives of Wedbush called Company A to inquire about the status of Company A’s comments to the preliminary draft merger agreement that Wedbush had sent to Company A on March 6, 2014. Company A never submitted comments to the merger agreement.

On April 11, 2014, representatives of Goodwin Procter, Latham and Wedbush had multiple communications regarding the calculation of the relative ownership percentages and the related provisions in the merger agreement, and regarding the anticipated pro forma capitalization of the combined company.

On April 14, 2014, the parties completed their respective due diligence efforts and finalized the terms of the proposed merger agreement and related documents, including, without limitation, the respective termination fees to be paid by each of Zalicus and Epirus in the event that (i) the merger agreement is terminated as a result of a change in recommendation by either party’s board or (ii) the merger agreement is terminated by either party in order to enter into a definitive agreement to effect a superior offer. Epirus’ counsel requested reciprocal termination fees of $1.05 million. Zalicus’ counsel requested a higher termination fee payable by Epirus because of its greater implied enterprise value. The parties agreed to a termination fee in the amount of $1.1 million to be paid by Zalicus and a termination fee in the amount of $2.5 million to be paid by Epirus, in either case payable in accordance with the terms of the proposed merger agreement.

On April 15, 2014, the Zalicus board of directors met with members of Zalicus’ management and representatives of each of Wedbush and Goodwin Procter. Representatives of Goodwin Procter reviewed with the Zalicus board of directors its legal obligations and fiduciary duties with respect to the consideration of the proposed merger with Epirus. Representatives of Wedbush reviewed certain financial matters concerning Epirus and the proposed merger. The representatives of Wedbush then delivered to the Zalicus board of directors an oral opinion, which was confirmed by the delivery of a written opinion dated April 15, 2014, that, as of that date, and based upon the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review set forth in its written opinion, the merger consideration to be paid by Zalicus in connection with the merger, as provided in the merger agreement, was fair to the holders of common stock of Zalicus (other than any affiliate of Zalicus, any holder of capital stock of Epirus or any of their respective affiliates) from a financial point of view. Goodwin Procter also reviewed the key provisions of the merger agreement, including structure and timing considerations, closing conditions, non-solicitation provisions and the exceptions thereto that would permit Zalicus or Epirus to negotiate and accept an unsolicited superior proposal, termination provisions, the termination fees, and circumstances under which the termination fees would be payable. The Zalicus board of directors then reviewed the various strategic reasons for the transaction, the prospects of Zalicus as a standalone company focusing on its existing business, including Z944, the estimated liquidation value of Zalicus to its stockholders, and current market conditions. After an extensive discussion and consideration of the financial and legal aspects of the proposed transaction, the Zalicus board of directors then unanimously (i) determined that the merger is advisable and in the best interests of Zalicus and its stockholders, (ii) approved the merger agreement, the merger and the other transactions contemplated by the merger agreement and deemed the merger agreement advisable, and (iii) approved and determined to recommend the approval of the issuance of the shares of Zalicus common stock in connection with the merger. All of the directors of Zalicus attended this meeting in person or by teleconference.

On the evening of April 15, 2014, Zalicus and Epirus finalized the merger agreement, executed the merger agreement and entered into voting agreements with certain officers, directors and stockholders of Zalicus and Epirus.

Before the opening of trading on April 16, 2014, Zalicus and Epirus issued a joint press release announcing the execution of the merger agreement and the related documents.

 

78


Table of Contents

On April 23, 2014, representatives of Latham contacted Goodwin Procter and requested that Zalicus amend its 2004 Plan to increase the amount of shares eligible to be issued under the plan by 3,000,000 shares, and requested that the increase be determined after giving effect to a reverse stock split of Zalicus’ outstanding shares of common stock, the ratio to be mutually agreed to by Zalicus and Epirus.

On May 5, 2014, the board of directors of Zalicus met to approve an amendment to the merger agreement to specify that the proposed amendment to the 2004 Plan to increase the pool by 3,000,000 shares should be determined on a post-split, rather than pre-split, basis and to remove the approval of the Amended 2004 Plan by the Zalicus stockholders at the special meeting of stockholders as a condition to the closing of the merger. In addition, the amendment to the merger agreement provided that two directors of the combined company are to be designated by Epirus, subject to the reasonable consent of Zalicus. On May 7, 2014, Zalicus and Epirus entered into an amendment to the merger agreement reflecting the foregoing matters.

Zalicus’ Reasons for the Merger

From time to time, Zalicus has considered various strategic business initiatives intended to strengthen its business and maximize stockholder value. As part of these evaluations, Zalicus, has, from time to time, considered various strategic alternatives, including licensing or acquiring rights to product candidates, divesting certain product candidates or businesses, or acquisitions of or mergers with other companies with other products, product candidates, or technologies. In this regard, Zalicus engaged Wedbush in the fourth quarter of 2012 to assist Zalicus in identifying potential acquisition candidates in the event that the trial results for Z160 were successful. On November 11, 2013, Zalicus announced top-line results from its two Phase 2 clinical studies of Z160. Z160 did not meet the primary endpoint in either of these Phase 2 trials and based on the results, Zalicus publicly announced that it was terminating further development of Z160. On the date the Z160 Phase 2 clinical trial results were announced, the price per share of Zalicus common stock declined by over 72%, from $4.69 to $1.30. During this process, the Zalicus board of directors consulted with its management, its financial advisor and legal advisors and other experts concerning the various alternatives available to it, including without limitation, (i) preserving cash and reduce operating expenses, (ii) exploring monetizing certain financial assets such as the Exalgo royalty steam and its remaining research and development programs, (iii) continuing payment of Zalicus’ indebtedness and reduce its other liabilities, (iv) continuing its cHTS business and development activities with its product candidate Z944, and (v) exploring a variety of strategic alternatives that Zalicus could pursue, including: (a) continuing as an independent company focused exclusively on its ion channel programs such as Z944, (b) continuing and potentially expanding its cHTS services business, (c) in-licensing additional product candidates for development, and/or (d) having Wedbush assist the company in the evaluation and potential execution of a business combination transaction to maximize stockholder value. During this process, Zalicus, through Wedbush, contacted 110 companies, set up management meetings with 40 companies and received 14 indications of interest in a strategic transaction. Following receipt of these indications of interest, the Zalicus board of directors engaged in active negotiations with three parties before entering into the merger agreement.

In the course of its evaluation of the merger and the merger agreement, the Zalicus board of directors held numerous meetings, consulted with its senior management, legal counsel and its financial advisor and reviewed a significant amount of information and, in reaching its decision to approve the merger and the merger agreement, the Zalicus board of directors considered a number of factors, including, among others, the following factors:

 

    information concerning Zalicus’ business, financial performance (both past and prospective) and its financial condition results of operation (both past and prospective), business and strategic objectives, as well as the risks of accomplishing those objectives;

 

    Zalicus’ business and financial prospects if it were to remain an independent company and the Zalicus board of directors’ determination that Zalicus could not continue to operate as an independent company and needed to enter into an agreement with a strategic partner;

 

   

the possible alternatives to the merger, the range of possible benefits and risks to the Zalicus stockholders of those alternatives and the timing and the likelihood of accomplishing the goal of any of

 

79


Table of Contents
 

such alternatives and Zalicus board of directors’ assessment that the merger presented a superior opportunity to such alternatives for Zalicus stockholders;

 

    Wedbush and the Zalicus board of directors’ view of the valuation of the potential merger candidates. In particular, their collective view that Epirus was the most attractive candidate because of its pipeline of biosimilar monoclonal antibodies and therapeutics proteins for commercialization in global markets. After considering the financial advice it had received from Wedbush, the Zalicus board of directors believed that the merger would create a publicly traded, global biosimilar enterprise focused on improving patient access to important medicines that would create more value for Zalicus’ stockholders than any of the other proposals that the Zalicus board of directors had received;

 

    Wedbush’s opinion, dated April 15, 2014, to the Zalicus board of directors that, as of the date of the opinion and based upon its analysis and subject to the assumptions made, matters considered and limitations and qualifications of the review undertaken in connection with the opinion, the consideration to be paid by Zalicus in connection with the merger was fair to the holders of common stock of Zalicus (other than any affiliate of Zalicus, any holder of Epirus capital stock or any of their respective affiliates) from a financial point of view (as more fully described in “The Merger-Opinion of Zalicus’ Financial Advisor” beginning on page 84);

 

    the ability of Zalicus’ stockholders to participate in the future growth potential of the combined company following the merger;

 

    the results of discussions with third parties relating to a possible business combination or similar transaction with Zalicus;

 

    the process undertaken by the Zalicus board of directors in connection with pursuing a strategic transaction and the terms and conditions of the proposed merger, in each case in light of the current market dynamics;

 

    current financial market conditions and historical market prices, volatility and trading information with respect to Zalicus’ common stock;

 

    the potential for obtaining a superior offer from an alternative purchaser in light of the other potential strategic buyers previously identified and contacted by or on behalf of Zalicus and the risk of losing the proposed transaction with Epirus;

 

    the terms of the merger agreement, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the termination rights of the parties;

 

    the likelihood that the merger would be consummated; and

 

    the merger agreement, subject to the limitations and requirements contained in the merger agreement, provides the Zalicus board of directors with flexibility to furnish information to and conduct negotiations with third parties in certain circumstances and, upon payment to Epirus of a termination fee of $1.1 million (which the Zalicus board of directors believes is reasonable under the circumstances) to terminate the merger agreement, to accept a superior proposal.

In the course of its deliberations, the Zalicus board of directors also considered, among other things, the following negative factors:

 

    the possibility that the merger will not be consummated and the potential negative effect of the public announcement of the merger on Zalicus’ business and stock price;

 

    the challenges inherent in the combination of the two divergent businesses of the size and scope of Zalicus and Epirus;

 

    certain provisions of the merger agreement that could have the effect of discouraging proposals for competing proposals involving Zalicus, including the restrictions on Zalicus’ ability to solicit proposals for competing transactions involving Zalicus and that under certain circumstances Zalicus may be required to pay to Epirus termination fee of $1.1 million;

 

80


Table of Contents
    the substantial fees and expenses associated with completing the merger; and

 

    the risk that the merger may not be completed despite the parties’ efforts or that the closing may be unduly delayed and the effects on Zalicus as a standalone company because of such failure or delay, and that a more limited range of alternative strategic transactions may be available to Zalicus in such an event.

Although this discussion of the information and factors considered by the Zalicus board of directors is believed to include the material factors considered by the Zalicus board of directors, it is not intended to be exhaustive. In light of the variety of factors considered in connection with their evaluation of the merger and the complexity of these matters, the Zalicus board of directors did not find it practicable to and did not quantify or attempt to assign any relative or specific weights to the various factors that it considered in reaching its determination that the merger and the merger agreement are advisable and in best interests of Zalicus and its stockholders. In addition, the Zalicus board of directors did not undertake to make any specific determination as to whether any particular factor, or any aspect of any particular factor, was favorable or unfavorable to the ultimate determination of the Zalicus board of directors, but rather the Zalicus board of directors conducted an overall analysis of the factors described above, including discussions with and questioning of our senior management, Goodwin Procter and Wedbush.

Recommendation of the Zalicus Board of Directors

After careful consideration, the Zalicus board of directors approved the merger agreement and the merger and determined that the merger agreement and the merger are advisable, and in the best interests of, the stockholders of Zalicus. Therefore, the Zalicus board of directors recommends Zalicus stockholders vote “FOR” the issuance of the shares of Zalicus common stock in the merger and the other Zalicus proposals set forth in this joint proxy statement/prospectus.

In considering the recommendation of the Zalicus board of directors with respect to the issuance of shares of Zalicus common stock in the merger, you should be aware that the directors and executive officers of Zalicus may have interests in the merger that are different from, or are in addition to, the interests of Zalicus stockholders. Please see “The Merger—Interests of Zalicus’ Executive Officers and Directors in the Merger.”

Interests of Zalicus’ Executive Officers and Directors in the Merger

Some of the directors and officers of Zalicus have interests in the merger that are different from, or in addition to, your interests. The Zalicus board of directors was aware of these interests and considered them, among other matters, in its decision to approve the merger agreement. Upon completion of the merger, it is expected that the employment of Mark H.N. Corrigan, M.D., the current president and chief executive officer of Zalicus, and Justin Renz, the current executive vice president, chief financial officer, treasurer and secretary of Zalicus, will be terminated without cause, and each will be entitled to certain severance payments and benefits and the vesting of certain equity awards will be accelerated in accordance with their existing employment arrangements with Zalicus or in accordance with the award terms. Dr. Corrigan shall serve as chairman and William Hunter, M.D., a current director, shall serve as a member of the Zalicus board of directors following the merger.

Severance Arrangements. Under his employment agreement with Zalicus, if Dr. Corrigan’s employment is terminated without cause or he resigns for good reason within 24 months of a change of control, Dr. Corrigan is entitled to receive a severance payment equal to two times his base salary, full acceleration of all outstanding equity held by Dr. Corrigan and continued payment of his health, dental and vision insurance premiums for a period of 24 months following the termination of employment. Under his employment arrangement with Zalicus, if Mr. Renz’s employment is terminated without cause or he resigns for good reason, whether or not in connection with a change in control, Mr. Renz will be entitled to receive a severance payment equal to 18 months

 

81


Table of Contents

of his base salary, full acceleration of all outstanding options held by Mr. Renz and continued payment of his health and dental insurance premiums for a period of 18 months following his termination of employment.

Equity Acceleration. In addition to the acceleration provided in the severance arrangements described above, each of Dr. Corrigan and Mr. Renz is entitled to accelerated vesting in connection with certain equity awards granted in February 2014, which awards were made, as was customarily done at the outset of each year, in connection with Zalicus’ annual compensation process. On February 10, 2014, Dr. Corrigan was granted an option to purchase 250,000 shares of Zalicus’ common stock and a restricted stock unit award with respect to 250,000 shares of Zalicus’ common stock, and Mr. Renz was granted a restricted stock unit award with respect to 250,000 shares of Zalicus’ common stock. Each award automatically vests with respect to 50% of the shares subject to the award as of the date of a change of control, and the remaining 50% of the award will vest on the six-month anniversary of a change of control, subject to continued employment; provided that if the executive’s employment is terminated without cause or for good reason, then the remaining portion of the award will vest in full.

In connection with the execution of the merger agreement, certain directors and executive officers of Zalicus entered into voting agreements with Zalicus and Epirus under which they agreed to vote all of the shares beneficially owned by them in favor of the Zalicus proposals described elsewhere in this joint proxy statement/prospectus. As a result of the foregoing, directors and executive officers of Zalicus may be more likely to vote to approve the Zalicus proposals than Zalicus stockholders generally. For further information with respect to the voting agreements, see the information included under “Voting Agreements.”

Golden Parachute Compensation

Background

This section sets forth the information required by Item 402(t) of Regulation S-K regarding the compensation for each of Zalicus’ named executive officers that is based on or otherwise relates to the merger. This compensation is referred to as “golden parachute” compensation by the applicable SEC disclosure rules, and in this section Zalicus uses such term to describe the merger-related compensation payable to Zalicus’ named executive officers.

Dr. Corrigan—Dr. Corrigan is employed as the president and chief executive officer of Zalicus pursuant to an employment agreement. Under his employment agreement, if Zalicus terminates Dr. Corrigan’s employment without cause, or Dr. Corrigan terminates his employment for good reason, both as defined in the agreement, Dr. Corrigan is entitled to receive a lump-sum payment equal to two times his annual base salary and will be permitted to continue to participate in Zalicus’ medical and dental benefit plans for a period of 24 months following the date of termination, at Zalicus’ expense. Upon a change in control of Zalicus, if Zalicus terminates Dr. Corrigan’s employment without cause, or Dr. Corrigan terminates his employment for good reason, within 24 months of the change in control, Dr. Corrigan is entitled to the following: (i) all unvested stock options and other stock-based awards held by Dr. Corrigan as of that date will become fully vested and exercisable; (ii) a lump sum payment equal to two times his annual base salary, and (iii) continued participation in the medical and dental benefit plans for a period of 24 months following the date of termination, at Zalicus’ expense. Receipt of any benefits by Dr. Corrigan upon termination will be conditioned upon Dr. Corrigan executing a general release of all claims in a form provided by Zalicus.

Mr. Renz—Mr. Renz is employed as executive vice president, chief financial officer, treasurer and secretary of Zalicus pursuant to an employment agreement, as amended. Under the agreement, if Zalicus terminates Mr. Renz’s employment without cause or if Mr. Renz terminates his employment for good reason, both as defined in the agreement, whether or not in connection with a change in control, he will be entitled to a lump sum payment equal to 18 months of his then current base salary, 18 months of the premium cost of participation in Zalicus’ medical and dental plans, subject to applicable law and plan terms, and accelerated vesting of 100% of the stock options which remain unvested on the date of termination, in each case subject to the execution of a release of claims.

 

82


Table of Contents

Equity Acceleration. In addition to the acceleration provided in the severance arrangements described above, each of Dr. Corrigan and Mr. Renz is entitled to accelerated vesting in connection with certain equity awards granted in February 2014, which awards were made, as was customarily done at the outset of each year, in connection with Zalicus’ annual compensation process. On February 10, 2014, Dr. Corrigan was granted an option to purchase 250,000 shares of Zalicus’ common stock and a restricted stock unit award with respect to 250,000 shares of Zalicus’ common stock, and Mr. Renz was granted a restricted stock unit award with respect to 250,000 shares of Zalicus’ common stock. Each award automatically vests with respect to 50% of the shares subject to the award as of the date of a change of control, and the remaining 50% of the award will vest on the six-month anniversary of a change of control, subject to continued employment; provided that if the executive’s employment is terminated without cause or for good reason, then the remaining portion of the award will vest in full.

For purposes of the employment and equity arrangements above, the consummation of the merger will constitute a “change of control” under each arrangement.

Aggregate Amounts of Potential Compensation

The table below summarizes potential golden parachute compensation that each named executive officer could be entitled to receive from Zalicus if the merger is consummated and if the named executive officer thereafter incurs a termination of employment under certain circumstances, as discussed below. As discussed in “Interests of Zalicus’ Directors and Executive Officers in the Merger,” it is currently expected that neither Dr. Corrigan nor Mr. Renz will continue to be employed by Zalicus following the closing of the merger and, accordingly, both will be entitled to receive the severance and benefits described above. Please note that the amounts indicated below are estimates based on multiple assumptions that may or may not actually occur, including assumptions described herein. Some of these assumptions are based on information not currently available and, as a result, the actual amounts, if any, to be received by named executive officer may differ in material respects from the amounts set forth below.

For purposes of calculating such potential golden parachute compensation, we have assumed that the merger occurs on May 16, 2014, including with respect to calculating the portion of equity awards subject to accelerated vesting, and have further assumed that the named executive officers will incur a termination of employment on such date that would entitle them to the benefits set forth in the table below.

 

     Golden Parachute Compensation         
     Cash(1)      Equity(2)      Perquisites/
Benefits(3)
     Total  

Mark H.N. Corrigan, M.D.

   $ 1,000,000       $ 327,777       $ 50,962       $ 1,378,739   

Justin A. Renz

   $ 503,661       $ 295,000       $ 22,836       $ 821,497  

Jason Cole(4)

     —           —           —           —     

 

(1) Amounts in this column represent the lump sum cash severance payment to be paid to each executive upon a termination of employment without “Cause” or a termination for “Good Reason” (as defined in each executive’s respective employment arrangement), subject to the execution and non-revocation of a general release of claims in favor of Zalicus. In the case of Dr. Corrigan, the cash severance would be equal to two times Dr. Corrigan’s base salary in effect at the time of the termination (or, if higher, the base salary at the time of the change in control) and, in the case of Mr. Renz, the cash severance would be equal to 18 months base salary at the rate in effect at the time of the termination. These amounts assume that base salaries remain unchanged from their levels in effect on the date of this joint proxy statement/prospectus.
(2)

These amounts reflect the aggregate amount attributable to the accelerated vesting of all outstanding options and restricted stock units held by the named executive officers. The value of the options was determined by multiplying the number of unvested option shares by the difference between $1.18 (the average closing market price of Zalicus’ common stock over the first five business days following the public announcement

 

83


Table of Contents
  of the merger agreement) and the exercise price for such unvested option shares. Assuming a price per share of $1.18, all option awards are out-of-the-money. The value of the restricted stock units was determined by multiplying the number of shares subject to unvested restricted stock units by $1.18 (the average closing market price of Zalicus’ common stock over the first five business days following the announcement of the merger).
(3) Amounts in this column represent (i) in the case of Dr. Corrigan, the estimated value of payments for continuation of medical coverage pursuant to COBRA for 24 months and (ii) in the case of Mr. Renz, the estimated value of payments for continuation of medical coverage pursuant to COBRA for 18 months. Such benefits are subject to the execution and non-revocation of a general release of claims in favor of Zalicus.
(4) On March 5, 2014, Jason Cole resigned from Zalicus and, accordingly, will receive no compensation in connection with the merger.

Opinion of Zalicus’ Financial Advisor

Scope of the Assignment

In December 2012, Zalicus’ board of directors engaged Wedbush to provide financial advisory and investment banking services in connection with a potential strategic transaction, and ultimately requested that Wedbush render an opinion as to whether the consideration to be paid by Zalicus in connection with the merger with Epirus, as provided in the merger agreement, was fair to the holders of common stock of Zalicus (other than any affiliate of Zalicus, any holder of capital stock of Epirus or any of their respective affiliates) from a financial point of view. Wedbush rendered its oral and written opinion to Zalicus’ board of directors that, as of April 15, 2014, and based upon the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review set forth in its written opinion, the merger consideration to be paid by Zalicus in connection with the merger, as provided in the merger agreement, was fair to the holders of common stock of Zalicus (other than any affiliate of Zalicus, any holder of capital stock of Epirus or any of their respective affiliates) from a financial point of view.

The full text of Wedbush’s written opinion, which sets forth the procedures followed, assumptions made, matters considered, and qualifications and limitations of the review undertaken in connection with such opinion, is attached as Appendix H and is incorporated herein by reference. Wedbush’s opinion was intended for the use and benefit of Zalicus’ board of directors in connection with its evaluation of the merger. Wedbush’s opinion does not address Zalicus’ underlying business decision to enter into the merger agreement or complete the merger or the relative merits of the merger compared to any alternative business strategies that may be available to Zalicus and does not constitute a recommendation to Zalicus’ board of directors or any stockholder as to how that person should vote on the issuance of shares of Zalicus common stock in the merger or any related matter. The following summary of Wedbush’s opinion is qualified in its entirety by reference to the full text of such opinion, and Zalicus’ stockholders are urged to read Wedbush’s opinion in its entirety.

For purposes of its opinion and in connection with its review of the merger, Wedbush has, among other things:

 

    reviewed a draft of the merger agreement dated April 14, 2014;

 

    reviewed certain publicly available business and financial information relating to Zalicus and Epirus, respectively;

 

    reviewed certain internal information, primarily financial in nature, including financial projections and other financial and operating data furnished to Wedbush by the managements of Zalicus and Epirus, respectively;

 

    reviewed certain publicly available information with respect to other companies in the biopharmaceutical industry that Wedbush believed to be comparable in certain respects to Epirus; and

 

84


Table of Contents
    considered the financial terms, to the extent publicly available, of selected recent business combinations of companies in the biopharmaceutical industry that Wedbush believed to be comparable in certain respects to Epirus, in whole or in part, and to the merger.

In addition to the foregoing, Wedbush held discussions with the management of Zalicus and Epirus concerning their views as to the financial and other information described in the bullet points above, and made inquiries regarding and discussed the merger agreement and related matters. In addition to the foregoing, Wedbush has conducted such other analyses and examinations and considered such other general financial, economic and market criteria as Wedbush deemed appropriate to arrive at its opinion.

In rendering its opinion, Wedbush relied upon and assumed, without independent verification, the accuracy and completeness of all information that was publicly available or was furnished to or discussed with Wedbush by Zalicus or any other party to the merger agreement or otherwise reviewed by Wedbush. With respect to projected cash balances and other information provided to or reviewed by it, Wedbush was advised by Zalicus’ management that this information was reasonably prepared on bases reflecting the best currently available estimates and judgments of Zalicus’ management as to expected future financial performance of Zalicus. Wedbush further relied on the assurances of Zalicus’ management that Zalicus’ management is unaware of any facts that would make the information provided to Wedbush incomplete or misleading. Wedbush did not make and was not provided with any independent evaluations or appraisals of any of Zalicus’ or Epirus’ assets, properties, liabilities or securities, nor did Wedbush make any physical inspection of Zalicus’ or Epirus’ properties or assets. Wedbush does not have any opinion on any financial forecast or the assumptions upon which they were based, by Zalicus’ management or Epirus’ management, nor does it have any opinion as to the price of Zalicus’ common stock in the future. Wedbush also has assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any material adverse effect on Zalicus, Epirus or the merger.

Wedbush’s opinion is based on economic, market and other conditions as in effect on, and the information made available to Wedbush as of, the date of such opinion. Wedbush has also relied on the accuracy and completeness of Zalicus’ and Epirus’ representations and warranties in the merger agreement, without regard to any qualifications that may be set forth in disclosure schedules or any other such qualifications. In addition, Wedbush has assumed that the merger will be consummated in accordance with the terms set forth in the merger agreement without any waiver, amendment or delay of any terms or conditions. In addition, Wedbush assumed that Epirus’ contemplated issuance of shares of Series B Preferred Stock, $0.0001 par value per share, would be consummated in two issuances, with the first issuance to occur approximately simultaneously with the execution and delivery of the merger agreement and the second issuance to occur following the execution and delivery of the merger agreement. Events occurring after the date of Wedbush’s opinion could materially affect the assumptions used in preparing such opinion. Wedbush assumed that the final form of the merger agreement would be substantially similar to the draft agreement reviewed by it. Wedbush has not undertaken to reaffirm or revise the opinion or otherwise comment upon any events occurring after the date of such opinion.

Wedbush noted in its opinion that it is not a legal, tax or regulatory advisor and has relied upon, without independent verification, the assessment of Zalicus and Epirus and their legal, tax or regulatory advisors with respect to legal, tax or regulatory matters.

Wedbush is an investment banking firm and a member of The New York Stock Exchange and other principal stock exchanges in the United States, and is regularly engaged as part of its business in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, private placements, secondary distributions of listed and unlisted securities, and valuations for corporate, estate and other purposes. Wedbush was selected by Zalicus’ board of directors based on Wedbush’s experience, expertise, reputation and familiarity with Zalicus. Zalicus’ board of directors did not impose any limitations on Wedbush with respect to the investigations made or procedures followed in rendering its opinion. Wedbush’s opinion was approved by a fairness committee at Wedbush in accordance with the requirements of FINRA Rule 5150.

 

85


Table of Contents

In rendering its opinion, Wedbush expressed no opinion as to the amount or nature of any compensation to any officers, directors, or employees of Zalicus, or any class of such persons, relative to the consideration to be received by the holders of the common stock of Zalicus in the merger or with respect to the fairness of any such compensation. Wedbush did not opine as to the merits of the merger compared to any alternative transactions that may be available to Zalicus should Zalicus desire to pursue such alternatives.

Wedbush was not been asked to, nor did it, offer any opinion as to the terms, other than the amount of the merger consideration to be paid by Zalicus in the proposed merger to the extent expressly specified in its opinion, of the merger agreement or the form of the merger. Wedbush expressed no opinion as to the price at which shares of common stock of Zalicus may trade subsequent to the announcement of the merger or the price at which shares of common stock of Zalicus may trade subsequent to the consummation of the merger. Wedbush also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any material adverse effect on Zalicus, Epirus or the merger.

In arriving at its opinion, Wedbush did not give any consideration to any terms or conditions of any other agreement to be entered into in connection with the merger agreement, including the terms or conditions of the related voting agreements.

Zalicus has agreed to pay Wedbush a fee of $100,000 for rendering its opinion upon the receipt of Wedbush’s opinion, and has agreed to pay Wedbush, contingent upon closing of the merger, a fee for providing investment banking and advisory services in relation to the merger in the amount of $750,000 (against which the $100,000 opinion fee and an earlier $10,000 retainer will be credited). Neither the opinion fee nor the investment banking and advisory services fee are contingent upon the conclusions reached by Wedbush in its opinion. In addition, Zalicus has agreed to indemnify Wedbush for certain liabilities arising out of its engagement. In the three years prior to the date hereof, Wedbush has provided to Zalicus services unrelated to the merger in connection with (i) an equity distribution agreement, dated February 9, 2011, pursuant to which Wedbush sold an aggregate of 1,480,000 shares of Zalicus’ common stock; (ii) an equity distribution agreement, dated January 10, 2012, pursuant to which Wedbush sold an aggregate of 2,342,996 shares of Zalicus’ common stock; and (iii) an equity distribution agreement, dated June 19, 2012, pursuant to which Wedbush sold an aggregate of 2,181,993 shares of Zalicus’ common stock. In addition, in June 2009, Wedbush provided investment banking and advisory services to CombinatoRx, Incorporated in connection with its merger with Neuromed Pharmaceuticals, Inc., Zalicus’ predecessor. Wedbush received aggregate fees in the amount of approximately $1.8 million for the foregoing referenced services that were unrelated to the merger. In the three years prior to the date hereof, Wedbush has not provided any services to Zalicus affiliates (other than as described above) or to Epirus. Wedbush may in the future provide investment banking and financial advisory services to Zalicus or Epirus unrelated to the proposed merger, for which services Wedbush would expect to receive compensation.

In the ordinary course of its business, Wedbush and its affiliates may actively trade the common stock of Zalicus for their own account and for the accounts of their customers and, accordingly, Wedbush and its affiliates may at any time hold a long or short position in the common stock of Zalicus. From such time as Wedbush became engaged by Zalicus to provide financial advisory and investment banking services in connection with a potential strategic transaction through the date of its opinion, Wedbush has not owned any Zalicus stock for its own account.

Summary of Analyses

The following is a summary of the material financial analyses performed by Wedbush in connection with reaching its opinion:

 

    Implied Epirus Financial Analyses

 

    Implied Total Enterprise Value Analysis

 

    Liquidation Analysis

 

86


Table of Contents
    Stand-Alone Epirus Financial Analyses

 

    Public Comparable Company Analysis

 

    Merger and Acquisition Transaction Analysis

 

    Discounted Peak Sales Analysis

 

    Private Financing Analysis

The following summaries are not a comprehensive description of Wedbush’s opinion or the analyses and examinations conducted by Wedbush, and the preparation of an opinion necessarily is not susceptible to partial analysis or summary description. Wedbush believes that such analyses and the following summaries must be considered as a whole and that selecting portions of such analyses and of the factors considered, without considering all such analyses and factors, would create an incomplete view of the process underlying the analyses.

In performing its analyses, Wedbush made numerous assumptions with respect to industry performance and general business and economic conditions such as industry growth, inflation, interest rates and many other matters, many of which are beyond the control of Zalicus and the control of Wedbush. Any estimates contained in Wedbush’s analyses are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by such analyses.

Wedbush and Zalicus’ Management discussed Zalicus Management’s view that a discounted cash flow analysis is not the most appropriate indicator of value given the previous clinical trial setback related to its lead product, Z160, and the resulting absence of cash flows. Wedbush did not conduct a discounted cash flow analysis and instead relied on the other analyses described herein.

Implied Epirus Financial Analyses

Implied Total Enterprise Value Analysis

Wedbush calculated a range of implied total enterprise values, defined as common equity value, plus total debt, less cash and cash equivalents, for Epirus, with the common equity value calculated based on the percentage ownership of the combined company to be held by Epirus shareholders under the terms of the merger agreement and the ten-day average closing price of Zalicus shares as of April 11, 2014 of $1.23. Based on Epirus stockholders holding 81%, 83% or 86% of the fully diluted shares of common stock of the combined company, and Epirus management’s estimate of net cash (defined as cash and cash equivalents less total debt) of $33.5 million, the resulting implied total enterprise values of Epirus were $107.1 million, $127.6 and $169.2 million, respectively. The foregoing estimate of net cash assumed the close of series B financing raising $31.0 million net of a $5.0 million bridge note conversion, plus $2.5 million in existing cash.

Liquidation Analysis

Based on information provided by Zalicus management and assuming Zalicus would be liquidated on June 30 2014, Wedbush calculated the implied enterprise value of Epirus under the following two scenarios.

 

   

First Scenario. Zalicus management estimated that Zalicus would have $4.5 million of cash to distribute to Zalicus shareholders on June 30, 2014, assuming Zalicus is not able to sell its remaining assets, which include the cHTS business, Canadian NOLs, and its clinical programs (referred to herein as the “6/30/14 Liquidation Value”). Such amount was calculated beginning with Zalicus’ cash balance of $19.8 million at December 31, 2013 and adjusting for Zalicus management’s estimates for cash inflows (specifically, an estimated $9.2 million attributable to Zalicus revenues and the sale of Exalgo royalty rights to Mallinckrodt Inc.) and cash outflows (including an estimated $3.6 million in clinical, bonus and severance expenses for 2013 but paid in 2014; estimated operating cash burn through

 

87


Table of Contents
 

June 30, 2014 in the amount of $5.3 million; repayment of debt in the amount of $9.3 million; estimated payments to various creditors in the amount of $0.5 million; estimated severance and benefit obligations in the amount of $2.8 million; and estimated legal and investment banking fees in the amount of $3.0 million) through June 30, 2014.

 

    Second Scenario. Zalicus management estimated the amount of cash it could potentially raise if it were successful in selling certain remaining assets. Although there can be no assurances that any actions by Zalicus to attempt to sell any or all of these assets will be successful, Zalicus estimated the following ranges of resulting cash assuming it were able to sell the listed assets: (i) the cHTS business ($3.0 million to $7.0 million); (ii) savings of up to $1.2 million in severance in any sale of cHTS business; (iii) monetization of Canadian NOLs ($0.0 to $6.5 million); (iv) sale of clinical programs (product candidate Z944 and Nav 1.7 discovery program) ($0.0 to $5.0 million). Zalicus management prepared these estimates in good faith based on a number of factors (including information derived from its efforts since the fall of 2013 to sell certain of these assets and negotiations with potential counterparties concerning the potential purchase of these assets). Zalicus estimated a high-end total potential upside of $17.9 million based on the assumption that Zalicus were successful in selling all of the listed assets at the following amounts, all of which are at top-end or near-top-end of the above ranges: (i) $7.0 million for any potential sale of the cHTS business, (ii) $0.9 million for severance savings in the event of a sale of the cHTS business, (iii) $5.0 million for Canadian NOLs and (iv) $5.0 million for any sale of Zalicus’ clinical programs. Adding the estimated $4.5 million 6/30/14 Liquidation Value (as described above) to the estimated $17.9 high-end potential upside yielded a Zalicus management estimate of $22.4 million in total liquidation value as of June 30, 2014 inclusive of top-end potential upside.

Under the first scenario, a $4.5 million liquidation cash balance results in Epirus stockholders receiving an 86% ownership of the combined company under the terms of the merger agreement, thereby implying an enterprise value of Epirus of $27.6 million. Under the second scenario, which reflects net cash above $12.0 million, Epirus shareholders would receive 81% of the combined company under the terms of the merger agreement, which thereby implies an enterprise value of Epirus of $51.2 million.

Stand-Alone Epirus Financial Analyses

Public Comparable Company Analysis

Using publicly available information, Wedbush reviewed selected financial data of nine publicly-traded companies in the biopharmaceutical industry having market capitalizations ranging between $50 million and $500 million and that were considered by Wedbush to have primary risk related to commercialization of assets. In this regard, Wedbush noted that although such companies were considered similar to Epirus, none of the companies has the same management, make-up, technology, size or mix of business as Epirus and accordingly there are inherent limitations on the applicability of such companies to the stand-alone financial analysis of Epirus. Wedbush reviewed and analyzed the following publicly-traded companies: AcelRx Pharmaceuticals, Corcept Therapeutics, Chelsea Therapeutics, Vanda Pharmaceuticals, Durata Therapeutics, Momenta Pharmaceuticals, Alimera Sciences, Eagle Pharmaceuticals and Alexza Pharmaceuticals (each a “Comparable Company” and collectively, the “Comparable Companies”).

Wedbush analyzed the following publicly available market and financial data for each of the Comparable Companies:

 

    common equity value defined as the number of fully-diluted shares multiplied by the closing price of the common stock, and enterprise value (“EV”) defined as common equity value, plus total debt, less cash and cash equivalents.

The nine Comparable Companies had enterprise values between $56.1 million and $397.3 million. In this public comparable company analysis, Wedbush derived a mean EV of $274.6 million and a median EV of

 

88


Table of Contents

$311.0 million, as of April 11, 2014. Wedbush then applied a 15% increase and a 15% decrease to the median EV in order to calculate a range of implied enterprise values for Epirus. Based on the public comparable company analysis, the range of enterprise values for Epirus was $264.4 million to $357.7 million.

Merger and Acquisition Transaction Analysis

Wedbush reviewed certain publicly available information relating to the following selected merger and acquisition transactions (each a “Comparable Transaction” and collectively, the “Comparable Transactions”) announced from November 2011 to January 2014, each transaction having total consideration of under $1 billion, involving biopharmaceutical companies considered by Wedbush to be similar to Epirus on the basis of stage of development and/or because they were considered by Wedbush to have primary business risk related to commercialization of assets at the time the transaction was announced. In this regard, Wedbush noted that although such companies were considered similar, none of the companies has the same management, make-up, technology, size or mix of business as Epirus and accordingly there are inherent limitations on the applicability of those transactions to the stand-alone financial analysis of Epirus. The Comparable Transactions considered were as follows:

 

Target

  

Acquiror

Nupathe    Teva Pharmaceuticals
Savient Pharmaceuticals    Crealta Pharmaceuticals
Trius Therapeutics    Cubist Pharmaceuticals
Optimer Pharmaceuticals    Cubist Pharmaceuticals
Incline Therapeutics    The Medicines Co.
DUSA Pharmaceuticals    Sun Pharmaceuticals
Oceana Therapeutics    Salix Pharmaceuticals
  
  

In its comparable transactions analysis, Wedbush used the upfront payment portion for each transaction, which Comparable Transactions had upfront payments ranging from $120.4 million to $707.0 million. The mean upfront payment of the Comparable Transactions was $318.1 million, and the median upfront payment of the Comparable Transactions was $230.0 million. As a result of this comparable transactions analysis, Wedbush considered the median upfront payment and then applied a 15% increase and a 15% decrease in order to calculate a range of implied enterprise values for Epirus. Based on this comparable transaction analysis, the range of implied enterprise values for Epirus was $195.5 million to $264.5 million. Five of the seven Comparable Transactions involved not only an upfront payment but also potential future milestone payment(s). Wedbush excluded any value attributable to potential future milestone payment(s) associated with the Comparable Transactions. Were any value attributed to potential future milestone payments in the Comparable Transaction analysis, the resulting range of implied enterprise values for Epirus would be higher than the $195.5 to $264.5 million range of enterprise values for Epirus that was derived through this comparable transactions analysis based on upfront payments only.

Discounted Peak Sales Analysis

Wedbush performed a discounted peak sales analysis for the following three product candidates in Epirus’ pipeline of biosimilar product candidates: BOW015, BOW030 and BOW050. Wedbush calculated the value of each product candidate by using a peak sales estimate provided by Epirus management for each of the three product candidates and applying a probability of success percentage to each product candidate, as described below. The three peak sales estimates provided by Epirus management, which reflect projected revenues to Epirus net of any projected partner payments, are: for BOW015, $160.0 million (with peak sales in 2021); for BOW050, $230.0 million (with peak sales in 2022); for BOW030, $31.0 million (with peak sales in 2022). The probability of success percentage adjusts the peak sales for the likelihood that the product candidate reaches commercialization; Wedbush used probability of success percentages derived from a third party study regarding clinical approval success probabilities. Wedbush next applied a one-year forward sales multiple to the probability-adjusted peak sales figure using a one-year forward sales multiple derived from publicly available data regarding each of the Comparable Companies, as described below, to arrive at a value of the product candidate. Wedbush then discounted, based on the discount rates described below, this future value back to March 31, 2014.

 

89


Table of Contents

Wedbush applied a 93% probability of success for BOW015, which is in registration for approval, and a 19% probability of success for each of BOW050 and BOW030, which are in the pre-clinical stage. Wedbush applied a one-year forward sales multiple of 3.8x to 5.8x to each probability-adjusted peak sales figure based on the mean one-year forward sales multiple of 4.8x for the Comparable Companies (where the mean was calculated using the enterprise value of each Comparable Company divided by 2015 estimated revenue derived from Bloomberg consensus estimates for such Comparable Company).

A discount rate range of 16.6% to 20.6% was used based on a weighted average cost of capital of 18.6% for the Comparable Companies.

Based on this discounted peak sales analysis, the range of implied enterprise values for Epirus was $205.1 million to $394.9 million.

Private Financing Analysis

Wedbush reviewed and analyzed certain publicly available information regarding recent venture-backed, private preferred stock financings for seven companies selected for (i) having consummated an initial public offering (IPO) within twelve months of a private financing and (ii) having new investors participating in the subject financing. In this regard, Wedbush noted that although such companies were considered similar, none of the companies has the same management, make-up, technology, size or mix of business as Epirus. Wedbush reviewed such financings for the following companies: Auspex Pharmaceuticals (January 2014), Dicerna Pharmaceuticals (August 2013), Karyopharm Therapeutics (July 2013), Esperion Therapeutics (April 2013), PTC Therapeutics (March 2013), bluebird bio (July 2012) and Intercept Pharmaceuticals (August 2012). The high and low discounts of private round financing valuation to IPO valuation were 54.6% and 20.0%, respectively, and the mean and median were 40.1% and 44.4%, respectively.

Wedbush analyzed the implied value of the shares of common stock to be issued by Zalicus to Epirus using the ten-day average closing price of Zalicus shares as of April 11, 2014 of $1.23, implying a public market equity valuation for Epirus. Based on an 81% to 86% Epirus ownership of the combined company and a 20.0% to 54.6% private financing discount to IPO, the implied range of equity values of Epirus as a stand-alone private company was $63.9 million to $162.1 million.

According to Epirus management, Epirus contemplated that the Series B Preferred Stock financing would involve Epirus issuing $36 million of Series B Preferred Stock and reflects an equity value of Epirus prior to such financing of approximately $75 million. This implies a post-Series B Preferred Stock financing equity value of Epirus of approximately $111 million, which amount is within the range of the above implied equity values calculated by Wedbush in the private financing analysis.

Comparison of Stand-Alone Epirus Financial Analyses to Implied Epirus Financial Analyses

Wedbush compared the results of the financial analyses described above under “Stand-Alone Epirus Financial Analyses” with the results of the financial analyses described above under “Implied Epirus Financial Analyses.” Wedbush calculated that the average value of Epirus under the Stand-Alone Epirus Financial Analyses was approximately $239 million, with a high of $394.9 million and a low of $63.9 million. Wedbush calculated that the average value of Epirus under the Implied Epirus Financial Analyses was approximately $89 million, with a high of $169.2 million and a low of $27.6 million. Wedbush noted that the average of the Stand-Alone Epirus Financial Analyses is higher than the average of the Implied Epirus Financial Analyses.

Conclusion

Based upon its analyses, and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations of the review undertaken in connection with its opinion, Wedbush is of the opinion

 

90


Table of Contents

that, as of the date of such opinion, the merger consideration to be paid by Zalicus in connection with the merger is fair to the holders of common stock of Zalicus (other than any affiliate of Zalicus, any holder of capital stock of Epirus or any of their respective affiliates) from a financial point of view.

Certain Prospective Financial Information of Epirus

In connection with the proposed merger, Epirus’ management prepared certain prospective financial information, and these projections were provided to the Transaction Committee, the Zalicus board of directors and Wedbush. The Epirus projections were not prepared with a view toward public disclosure or compliance with published guidelines of the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information or GAAP. For Epirus fiscal years 2014 through 2016, the Epirus projections projected total revenues of $10.8 million, $48.2 million and $30.9 million, respectively, and net income (loss) of ($14.3 million), ($40.6 million) and ($34.6 million), respectively. The Epirus projections did not give effect to any changes or expenses as a result of the merger or any other effects of the merger. Further, these projections did not give effect to subsequent events impacting Epirus’ business, including (but not limited to) delays in partnership activity timing and commercial sales for its lead product, BOW015, and expansion of Epirus’ business strategy to focus on additional assets, all of which together significantly impact the foregoing projections. Due to the early stage of development of Epirus’ business and its drug candidates as well as the inherent lack of certainty in respect of these projections, Epirus does not consider the projections to be a reliable prediction of future results. Further, neither the Transaction Committee nor the Zalicus board of directors relied on these projections in considering the potential benefits of the merger, and Wedbush did not use or rely upon these projections in conducting the financial analyses described above under “Opinion of Zalicus’ Financial Advisor.”

Epirus’ Reasons for the Merger

In approving and authorizing the merger agreement and the merger, the Epirus board of directors considered a number of factors. Although the following discussion sets forth the material factors considered by the Epirus board of directors in reaching its determination, it may not include all of the factors considered by the Epirus board of directors. In light of the number and wide variety of factors considered in connection with its evaluation of the merger agreement and the merger, the Epirus board of directors did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative weights to the specific factors it considered in reaching its determination. The Epirus board of directors viewed its position and determinations as being based on all of the information available and the factors presented to and considered by it. In addition, individual directors may have given different weight to different factors.

In reaching its decision, the Epirus board of directors consulted with Epirus’ management with respect to strategic and operational matters and with Epirus’ legal counsel with respect to the merger agreement and the transactions contemplated thereby. The Epirus board of directors also consulted with Leerink Partners LLC, Epirus’ financial advisor, with respect to the financial aspects of the merger in context with other alternatives.

Among the factors considered by the Epirus board of directors in its decision to approve the merger agreement were the following: (a) the judgment, advice and analysis of Epirus’ senior management and advisors with respect to the potential benefits of the merger, including Zalicus’ available resources, product candidates, drug discovery platforms, partnerships and collaborations, intellectual property and employees, as well as Zalicus’ liabilities, based in part on the business, technical, financial due diligence investigations performed with respect to Zalicus; (b) Zalicus’ status as a publicly traded company and the fact that following the merger, Epirus would be a publicly traded company with potentially broader and more flexible financing opportunities; (c) historical and current information concerning Epirus’ business, including its financial performance and condition, operations, management and competitive position, current industry and economic conditions, and Epirus’ prospects if it was to remain an independent company, including: (i) the risk of adverse regulatory or clinical outcomes in clinical trials; and (ii) its need to obtain additional financing and the likely terms on which it

 

91


Table of Contents

would be able to obtain such financing; (d) the status of Zalicus’ and Epirus’ drug candidates; (e) the general economic and market conditions, as they relate to Epirus’ ability to raise additional capital from new investors for the continued growth of Epirus’ business, and as they relate to the potential prospects for the combined company to raise additional capital; (f) the current conditions in the pharmaceutical and biotechnology marketplace and the positioning of Zalicus within that market after the merger; (g) the terms of the merger agreement, including the merger consideration, as well as the parties’ representations, warranties and covenants and the conditions to their respective obligations.

In reaching its determination to approve the merger agreement and the merger, the members of the Epirus board of directors identified and considered a number of the potentially beneficial aspects of the merger, including the following:

 

    the combined company’s cash and cash equivalents and projected cash burn rate;

 

    the profile and status of Zalicus’ product candidates and drug discovery technologies, and the prospect that they may provide additional value and sources of revenue with respect to stage of development, with Epirus’ product pipeline;

 

    the perceived ability of Epirus’ management to further develop several of Zalicus’ pipeline candidates through clinical development and, possibly, approval from regulatory authorities;

 

    the expectation that most of Epirus’ employees, especially its management, will serve in similar roles at the combined company;

 

    the fact that the merger will provide Epirus stockholders with shares of Zalicus common stock, a publicly traded company, which would provide Epirus stockholders with the possibility of liquidity;

 

    the range of options available to the combined organization to access private and public equity markets to fund future capital needs, which would likely be greater than the options available to Epirus alone;

 

    the contribution of Zalicus’ cash, intellectual property and other assets to a combined company, which could help accelerate Epirus’ development plans and Epirus’ ability to generate products while also preserving the accumulated value in Epirus’ product candidates and research platform;

 

    the terms of the merger agreement are reasonable, including the parties’ representations, warranties and covenants, and the conditions to the parties’ respective obligations; and

 

    the conclusion of Epirus’ board of directors that the $2.5 million termination fee, and the circumstances when such fee may be payable, were reasonable.

The members of the Epirus board of directors also identified and considered the following material uncertainties and risks:

 

    the risk that the potential benefits of the merger might not be realized;

 

    the price volatility of Zalicus’ common stock, which may reduce the value of the Zalicus common stock that Epirus stockholders will receive upon the consummation of the merger and, in particular, possibly result in the holders of Epirus common stock and preferred stock receiving significantly less consideration in the merger;

 

    the reduction in the ability of Epirus’ stockholders to realize the long-term value of the successful execution of Epirus’ current strategy as an independent company;

 

    the possible loss of key management, technical or other personnel of either of the combining companies as a result of the management and other changes that will be implemented in integrating the businesses;

 

    the risk of diverting management’s attention from other strategic priorities to implement merger integration efforts;

 

92


Table of Contents
    the risk that future sales of common stock by existing Zalicus stockholders may cause the price of Zalicus common stock to fall, thus reducing the value of the consideration received in the merger;

 

    the risk that the termination fee and restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire Epirus;

 

    the risk that the merger may fail to qualify as a reorganization for U.S. federal income tax purposes, resulting in recognition of taxable gain by Epirus stockholders in respect of their Epirus stock;

 

    the risk that Zalicus’ technology may not be successfully developed, approved or commercialized or that Zalicus collaborative arrangements may be terminated or fail to successfully develop products;

 

    the risk that the merger may not be completed, and that a more limited range of alternative strategic transactions would be available to Epirus in that event; and

 

    the substantial expenses to be incurred in connection with the merger, future contractual obligations of Zalicus, principally the obligations under its existing lease, and related administrative challenges associated with combining the companies.

The Epirus board of directors weighed the benefits, advantages and opportunities of a potential transaction against the negative factors described above, including the possible diversion of management attention for an extended period of time. The Epirus board of directors realized that there can be no assurance about future results, including results expected or considered in the factors listed above. However, the Epirus board of directors concluded that the potential benefits significantly outweighed the potential risks of completing the merger.

After taking into account these and other factors, the Epirus board of directors approved and authorized the merger agreement and the transactions contemplated thereby, including the merger.

Recommendation of the Epirus Board of Directors

After careful consideration, the Epirus board of directors has approved and declared advisable Proposal No. 1 to adopt and approve the merger agreement and the transactions proposed thereunder, including the merger. The Epirus board of directors believes that the merger agreement and the transactions proposed thereunder, including the merger, are in the best interests of Epirus and its stockholders. The Epirus board of directors recommends that the Epirus stockholders vote “FOR” proposal No. 1 to approve and adopt the merger agreement and the transactions proposed thereunder, including the merger.

Interests of Epirus’ Executive Officers and Directors in the Merger

Epirus’ directors and management have interests in the merger as individuals in addition to, and that may be different from, the interests of Epirus’ stockholders. The Epirus board of directors was aware of these interests and considered them, among other matters, in its decision to approve the merger agreement.

Geoffrey Duyk, Scott Rocklage, Amit Munshi, J. Kevin Buchi, and Daotian Fu, each of whom is a current director of Epirus, are expected to be members of the Zalicus board of directors after the merger. These relationships may have influenced their decision to vote in favor of the merger and to recommend that Epirus stockholders vote in favor of the merger and related transactions. In addition, certain of the current executive officers or key employees of Epirus are expected to serve as executive officers or key employees of Zalicus at the effective time of the merger.

As of May 1, 2014, Epirus’ executive officers as a group held eligible options to purchase a total of 6,552,099 shares of Epirus common stock with a weighted average exercise price of $0.75 per share. As described under “Treatment of Epirus Equity Awards,” beginning on page 15, all Epirus options will be

 

93


Table of Contents

converted into options with respect to Zalicus common stock in connection with the merger. For more detailed information on Epirus’ executive officers’ beneficial ownership of Epirus common stock and eligible options held by Epirus’ executive officers, please refer to “Epirus Principal Stockholders.”

Pursuant to the merger agreement, upon the completion of the merger, Zalicus and Epirus agreed that all rights of indemnification, exculpation or advancement of expenses now existing in favor of, and all limitations on the personal liability of each present and former director and officer of Epirus and its subsidiaries as provided for in the respective organizational documents in effect as of the date of the merger agreement, shall continue to be honored and in full force and effect for a period of six years after the closing of the merger; provided, however, that all rights to indemnification in respect of any claims asserted or made within such period shall continue until the disposition of such claim. The certificate of incorporation and by-laws of the combined company will contain provisions with respect to indemnification, exculpation from liability and advancement of expenses that are at least as favorable as those currently in Epirus’ organizational documents and during such six year period following the effective time, Zalicus shall not and shall not cause the combined company to amend, repeal or otherwise modify such provisions in any manner that would materially and adversely affect the rights thereunder of individuals who at any time prior to the closing of the merger was a director, officer, employee, fiduciary, or agent of any of Epirus or its subsidiaries in respect of actions or omissions occurring at or prior to the closing of the merger, unless such modification is required by applicable laws. From and after the completion of the merger, Zalicus and the combined company will indemnify and hold harmless each present and former director and officer of Epirus and its subsidiaries in respect of acts or omissions occurring prior to the completion of the merger to the extent provided in any written indemnification agreement in effect as of the date of the merger agreement or required by Epirus’ organizational documents in effect immediately prior to closing.

Zalicus shall purchase a six-year “tail” policy under Zalicus’ existing directors’ and officers’ liability insurance policy, with an effective date as of the closing of the merger.

Certain of the Epirus stockholders who have entered into voting agreements with Zalicus, agreeing to vote all shares beneficially owned by them in favor of approval and adoption of the merger agreement and approval of the merger, are affiliated with directors of Epirus.

As a result of the foregoing, the directors and executive officers of Epirus may be more likely to vote to approve the merger than Epirus stockholders generally.

Material United States Federal Income Tax Consequences of the Merger

The following discussion summarizes the material U.S. federal income tax consequences of the merger that are expected to apply generally to each Epirus stockholder upon exchange of shares of Epirus capital stock for shares of Zalicus common stock upon the consummation of the merger. This summary is based upon current provisions of the Code, existing Treasury regulations and current administrative rulings and court decisions, all in effect as of the date hereof and all of which are subject to change. Any change, which may be retroactive, could alter the tax consequences to Zalicus, Epirus or the Epirus stockholders as described in this summary. No attempt has been made to comment on all of the U.S. federal income tax consequences of the merger that may be relevant to particular holders, including holders who do not hold their shares as capital assets; holders subject to special treatment under the Code such as dealers in securities; banks; insurance companies; other financial institutions; mutual funds; real estate investment trusts; tax-exempt organizations; investors in pass-through entities; stockholders who are subject to the alternative minimum tax provisions of the Code; Epirus stockholders who hold their shares as part of a hedge, wash sale, synthetic security, conversion transaction, or other integrated transaction; U.S. holders, as defined below, that have a functional currency other than the U.S. dollar; traders in securities who elect to apply a mark-to-market method of accounting; Epirus stockholders who acquired their shares of stock pursuant to the exercise of options or otherwise as compensation or through a tax-qualified retirement plan or through the exercise of a warrant; and certain expatriates or former long-term residents of the United States. Stockholders described in this paragraph are urged to consult their own tax advisors regarding the consequences to them of the merger.

 

 

94


Table of Contents

In the case of a stockholder that is a partnership, the U.S. federal income tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships that are holders of Epirus capital stock and partners in such partnerships are urged to consult their own tax advisors regarding the consequences to them of the merger.

In addition, the following discussion does not address the tax consequences of the merger under state, local or non-U.S. tax laws or federal tax laws other than the income tax. Furthermore, the following discussion does not address: (a) the tax consequences of transactions effectuated before, after or at the same time as the merger, whether or not they are in connection with the merger, including, without limitation, transactions in which shares of Epirus capital stock are acquired or disposed of (b) the tax consequences to holders of options or warrants issued by Epirus which are assumed in connection with the merger; (c) the tax consequences of the receipt of shares of Zalicus common stock other than in exchange for shares of Epirus capital stock pursuant to the merger agreement, or (d) the consequences if an Epirus stockholder fails to provide Zalicus information required to avoid the application of the backup withholding rules. No ruling from the Internal Revenue Service, or the IRS or opinion of counsel, has been or will be requested in connection with the merger, and Epirus stockholders should be aware that the IRS could adopt a position which could be sustained by a court contrary to that set forth in this discussion.

Holders of Epirus capital stock are urged to consult their tax advisors regarding the U.S. federal income tax consequences of the merger in light of their personal circumstances and the consequences under state, local and non-U.S. tax laws and other federal tax laws.

Treatment of Merger as a “Reorganization” under Section 368(a)

Zalicus and Epirus intend the merger to qualify as a reorganization within the meaning of Section 368(a) of the Code.

Treatment of Epirus stockholders in the merger

For purposes of this discussion, “U.S. holder” and “non-U.S. holder” are defined as follows:

 

    a “U.S. holder” is a beneficial owner of Epirus capital stock, that is (a) an individual citizen or resident of the United States, (b) a corporation or any other entity taxable as a corporation created or organized in or under the laws of the United States or of a state of the United States or the District of Columbia, (c) a trust (i) in respect of which a U.S. court is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust or (ii) that validly elected to be treated as a U.S. person for U.S. federal income tax purposes, or (d) an estate that is subject to U.S. federal income tax on its worldwide income from all sources; and

 

    a “non-U.S. holder” is a beneficial owner of Epirus capital stock other than a U.S. holder or a partnership for U.S. federal income tax purposes.

Treatment of U.S. holders in the merger

If the merger qualifies as a reorganization, within the meaning of Section 368(a) of the Code, Epirus stockholders generally will not recognize gain or loss upon the exchange of their Epirus capital stock for Zalicus common stock. Epirus stockholders generally will obtain a basis in the Zalicus common stock they receive in the merger equal to their basis in the exchanged Epirus capital stock. The holding period of the shares of Zalicus common stock received by a Epirus stockholder in the merger will include the holding period of the shares of Epirus capital stock surrendered in exchange therefor.

 

 

95


Table of Contents

A U.S. holder who receives cash in lieu of a fractional share of Zalicus common stock will be treated for U.S. federal income tax purposes as having received such fractional share pursuant to the merger and then as having exchanged such fractional share for cash in a redemption by Zalicus. Such U.S. holder will recognize gain or loss equal to the difference, if any, between such stockholder’s basis in the fractional share and the amount of cash received. Such gain or loss will be a long-term capital gain or loss, if the U.S. holder’s holding period is greater than one year as of the date of the closing of the merger. For U.S. holders who are individuals, any long-term capital gain generally will be taxed at a U.S. federal income tax rate of 20%. The deductibility of capital losses is subject to limitations.

If the merger is not treated as a reorganization within the meaning of Section 368(a) of the Code, then each U.S. holder generally will be treated as exchanging its Epirus capital stock in a fully taxable transaction in exchange for Zalicus common stock. Gain or loss recognized upon such an exchange generally will be capital gain or capital loss. Any recognized capital gain or capital loss will be long-term capital gain or capital loss, if the U.S. holder has held the shares of Epirus capital stock for more than one year.

U.S. holders that are individual taxpayers may be subject to a 3.8% Medicare surtax with respect to gain recognized in respect of cash received in lieu of fractional shares or if the merger is not treated as a reorganization within the meaning of Section 368(a) of the Code. Such Medicare surtax applies on the lesser of such U.S. holder’s “net investment income” and modified adjusted gross income over a threshold amount of $200,000 ($250,000 for married taxpayers filing jointly and surviving spouses, and $125,000 for married taxpayers filing separately). Net investment income means the excess of (1) the sum of (a) gross income from interest, dividends, annuities, royalties and rents, and net gain attributable to the disposition of property, unless such income is derived from a trade or business not described in (1)(b), and (b) other gross income from a trade or business that constitutes a passive activity or the trading of financial instruments or commodities, over (2) deductions properly allocable to such activities. The 3.8% Medicare surtax also applies to U.S. holders that are estates or trusts on the lesser of their undistributed net income and the excess of their adjusted gross income over the dollar amount at which the highest tax bracket for estates and trusts begins for the tax year.

U.S. holders and reporting requirements

If the merger is a reorganization within the meaning of Section 368(a) of the Code, certain U.S. holders that receive Zalicus common stock in the merger will be required to file statements with their U.S. federal income tax returns setting forth their basis in the Epirus capital stock surrendered and the fair market value of the consideration received in the merger, and to retain permanent records of these facts relating to the merger. U.S. holders are urged to consult their tax advisors to comply with these rules.

Treatment of non-U.S. holders in the merger

A non-U.S. holder will not be subject to U.S. federal income or withholding tax on gain with respect to the merger if the merger is treated as reorganization within the meaning of Section 368(a) of the Code. If the merger is not treated as a reorganization, within the meaning of Section 368(a) of the Code, a non-U.S. holder will still not be subject to U.S. federal income or withholding tax on gain with respect to the merger as long as:

 

    such gain is not effectively connected with the conduct by the non-U.S. holder of a trade or business within the United States or, if a tax treaty applies, is not attributable to a permanent establishment or fixed place of business maintained by the non-U.S. holder in the United States;

 

    in the case of certain capital gains, the non-U.S. holder either is not considered, for U.S. federal income tax purposes, to be present in the United States for 183 days or more during the taxable year in which the capital gain is recognized or otherwise qualifies for an exemption; and

 

    Epirus neither is nor has been a “U.S. real property holding corporation” at any time within the shorter of the five-year period ending on the date on which the proposed transaction is consummated or such non-U.S. holder’s holding period.

 

 

96


Table of Contents

Generally, a corporation is a “U.S. real property holding corporation” if the fair market value of its U.S. real property interests, as defined in the Code and applicable regulations, equals or exceeds 50% of the aggregate fair market value of its worldwide real property interests and its other assets used or held for use in a trade or business. Epirus believes that it is not and or has not been a U.S. real property holding corporation within the last five years and does not expect to become a U.S. real property holding corporation prior to the date of the closing of the merger.

The foregoing summary is of a general nature only and is not intended to be, and should not be construed to be, legal, business or tax advice to any particular Epirus stockholder. This summary does not take into account your particular circumstances and does not address consequences that may be particular to you. Therefore, you should consult your tax advisor regarding the particular consequences of the merger to you.

Accounting Treatment

Zalicus intends to treat the merger as a purchase by Epirus of Zalicus under accounting principles generally accepted in the United States, or GAAP. Under the purchase method of accounting the assets and liabilities of Zalicus will be recorded, as of the completion of the merger, at their respective fair values, in the financial statements of Epirus. Financial statements of Epirus issued after the completion of the merger will reflect these values, but will not be restated retroactively to reflect the historical financial position or results of operations of Zalicus.

The NASDAQ Capital Market Listing

Zalicus anticipates that its common stock will continue to be listed on The NASDAQ Capital Market following the completion of the merger under the trading symbol “EPRS” (although, if the proposed reverse stock split is implemented, NASDAQ would likely add the letter “D” to the end of the trading symbol for a

period of 20 trading days to indicate that the reverse stock split has occurred). To enable Zalicus to maintain its eligibility for the continued listing of its common stock on The NASDAQ Capital Market, Zalicus is seeking stockholder approval pursuant to this joint proxy statement/prospectus to authorize an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect a reverse stock split of the issued and outstanding shares of Zalicus common stock pursuant to which any whole number of outstanding shares between and including 6 and 12, such whole number to be determined by the Zalicus board of directors, would be combined and reclassified into one share of Zalicus common stock. The reverse stock split will become effective at a time mutually agreed to by Zalicus and Epirus, potentially including after the consummation of the merger.

 

97


Table of Contents

MERGER AGREEMENT

This section contains material information pertaining to the merger agreement. The following summary describes the material provisions of the merger agreement. The full text of the merger agreement is attached as Appendix A to this joint proxy statement/prospectus, the full text of the amendment to the merger agreement is attached as Appendix B to this joint proxy statement/prospectus and both are incorporated herein by reference. This summary may not contain all of the information that is important to you, and you are encouraged to read carefully the entire merger agreement. The following description is subject to, and is qualified in its entirety by reference to, the merger agreement. The voting agreements are described in the section “Voting Agreements” on page 115.

Structure

Subject to the terms and conditions of the merger agreement, and in accordance with Delaware law, at the completion of the merger, BRunning, Inc., a wholly-owned subsidiary of Zalicus, or Merger Sub, will merge with and into Epirus. Epirus will be the surviving corporation in the merger and will continue as a wholly-owned subsidiary of Zalicus.

Completion and Effectiveness of the Merger

The merger will be completed as promptly as practicable after all of the conditions to completion of the merger are satisfied or waived, including the approval of the stockholders of Zalicus and Epirus. The merger will become effective when a duly executed and delivered certificate of merger is filed with the Secretary of State of the State of Delaware.

Zalicus and Epirus are working to complete the merger as quickly as practicable and currently expect that the merger could be completed during the summer of 2014. However, Zalicus and Epirus cannot predict the exact timing of the completion of the merger because it is subject to various conditions.

Merger Consideration and Adjustment

At the effective time of the merger, each outstanding share of capital stock of Epirus will be converted into the right to receive that number of shares of Zalicus common stock, if any, as determined pursuant to the exchange ratio described in the merger agreement. No fractional shares of Zalicus common stock will be issued in connection with the merger. Instead, each Epirus stockholder who otherwise would be entitled to receive a fractional share of Zalicus common stock (after aggregating all fractional shares of Zalicus common stock issuable to such holder) will be entitled to receive an amount in cash (rounded to the nearest whole cent), without interest, determined by multiplying such fraction of a share of Zalicus common stock by the closing price of a share of Zalicus common stock on The NASDAQ Capital Market on the day on which the merger is completed.

Following the consummation of the transactions contemplated by the merger agreement, the current equityholders of Epirus and current stockholders of Zalicus are expected to own (i) 86% and 14% of the combined company, respectively, if Zalicus has an amount of net cash as of a certain determination date prior to the effective time of the merger equal to or less than $9.0 million, (ii) 83% and 17% of the combined company, respectively, if Zalicus has an amount of net cash as of a certain determination date prior to the effective time of the merger greater than $9.0 million and less than $12.0 million or (iii) 81% and 19% of the combined company, respectively, if Zalicus has an amount of net cash as of a certain determination date prior to the effective time of the merger equal to or in excess of $12.0 million; provided, that in no event will the current stockholders of Zalicus own less than 14% of the combined company. Zalicus will issue to the current stockholders of Epirus the aggregate number of shares of Zalicus common stock necessary for the current Epirus equityholders to own 86%, 83% or 81%, as applicable, of the outstanding shares of common stock of the combined company based on Zalicus’ net cash, as discussed below.

 

98


Table of Contents

The exchange ratio for each share of Epirus capital stock will be determined based on the aggregate number of shares of Zalicus common stock that Zalicus issues in connection with the merger (including in respect of outstanding Epirus options and warrants) and the aggregate number of securities of Epirus that are outstanding at the time of closing of the merger (including all outstanding options and warrants whether or not then exercisable). The aggregate number of shares of Zalicus common stock that Zalicus issues in connection with the merger (including in respect of outstanding Epirus options and warrants) will be determined by multiplying the percentage of the combined company that the current stockholders of Epirus will own by a fraction, the numerator of which is the number of adjusted outstanding shares of Zalicus common stock (as described below) and the denominator of which is the percentage of the combined company that the current stockholders of Zalicus will own (subject to adjustment based on Zalicus’ net cash). The number of adjusted outstanding shares of Zalicus common stock will be equal to the sum of the total number of shares of Zalicus common stock outstanding immediately prior to the merger, plus 250,000 shares of Zalicus common stock that are issuable upon exercise of Zalicus stock options, plus 527,777 shares of Zalicus common stock that are subject to outstanding Zalicus restricted stock units. The exchange ratio for each share of Epirus capital stock will be determined by dividing (i) the aggregate number of shares of Zalicus common stock issued in connection with the merger (including in respect of outstanding Epirus options and warrants) by (ii) the aggregate number of shares of Epirus capital stock, Epirus capital stock issuable upon the exercise of Epirus warrants, Epirus stock options and any other awards under Epirus’ stock option plans, in each case, outstanding immediately prior to the merger, and will be calculated to the nearest 1/10,000 of a share.

For illustrative purposes only, assuming Zalicus’ net cash was determined to be $10 million, the exchange ratio (without giving effect to the proposed reverse stock split of Zalicus common stock described elsewhere in this joint proxy statement/prospectus) for the Epirus capital stock would have been approximately 1.5142 shares of Zalicus common stock for each share of Epirus capital stock. Therefore, if the merger had been completed based on such calculation and you owned 1,000 shares of Epirus capital stock as of the effective time, you would have had the right to receive 1,514 shares of Zalicus common stock in exchange for your shares of Epirus capital stock.

The example above assumes the following:

 

    Zalicus’ level of net cash as of the determination date is equal to $10 million;

 

    26,108,910 shares of Zalicus common stock are actually outstanding;

 

    250,000 shares of Zalicus common stock are subject to options;

 

    527,777 shares of Zalicus common stock subject to outstanding restricted stock units;

 

    74,679,154 shares of Epirus preferred stock are outstanding;

 

    8,930,353 shares of Epirus common stock are subject to options then outstanding;

 

    165,910 shares of Epirus capital stock are subject to warrants to purchase shares of Epirus capital stock; and

 

    2,914,865 shares of Epirus common stock are outstanding.

The exchange ratio will be determined, as discussed above and as described in the merger agreement, based upon the amount of “net cash” of Zalicus, which, as defined in the merger agreement, generally consists of Zalicus’ cash and cash equivalents less certain expenses and liabilities, as of a determination date prior to the closing date of the merger. For a more complete discussion of the determination of Zalicus’ net cash, see the section entitled “Merger Agreement—Determination of Zalicus’ Net Cash.” In addition, one of the conditions to Epirus’ obligations to complete the merger is Zalicus’ net cash as of the closing date being no less than $3.0 million as calculated pursuant to the provisions of the merger agreement.

 

99


Table of Contents

The following table illustrates the percentage ownership of the combined company by Zalicus and Epirus current stockholders assuming various amounts of net cash of Zalicus as of the determination date.

 

Zalicus’ Net Cash as of

Determination Date Calculated

Pursuant to Merger Agreement

   Zalicus Stockholder
Ownership

of Outstanding Shares of
Combined Company
    Epirus Equityholder
Ownership

of Outstanding Shares of
Combined Company
 

³ $12.0 million

     19.0     81.0

> $9.0 million and < $12.0 million

     17.0     83.0

£ $9.0 million

     14.0     86.0

Zalicus’ net cash balance at the determination date is subject to numerous factors, many of which are outside of Zalicus’ control. Zalicus will issue a news release after the final determination of the exchange ratio announcing the final exchange ratio and Zalicus’ net cash balance at the determination date. If Zalicus’ net cash at the closing date is less than $3.0 million (as calculated pursuant to the terms of the merger agreement), based on the manner of calculating net cash pursuant to the merger agreement, Zalicus would be unable to satisfy a closing condition for the merger, and Epirus could elect to terminate the merger agreement or waive the condition.

Determination of Zalicus’ Net Cash

For purposes of determining the exchange ratio, Zalicus’ net cash will be calculated as of the date that is 14 days prior to the date of the Zalicus annual meeting as set forth in this joint proxy statement/prospectus, subject to extension for an adjournment of such meeting. For purposes of determining whether Zalicus has satisfied the condition to closing that Zalicus have no less than $3.0 million in net cash as of the closing date (as calculated pursuant to the terms of the merger agreement), Zalicus’ net cash will be calculated shortly before the closing date of the merger. The closing of the merger could be delayed if Zalicus and Epirus are not able agree upon the amount of Zalicus’ net cash as of the determination date prior to the Zalicus annual meeting or as of the closing date.

Under the merger agreement, Zalicus’ “net cash” is defined as the amount of its cash and cash equivalents, short-term investments and restricted cash, plus its accounts receivable, minus the aggregate amount of the following liabilities:

 

    accounts payable and severance payments;

 

    indebtedness for borrowed money or in respect of capitalized leases or the purchase of assets of Zalicus;

 

    all out-of-pocket costs in connection with the merger agreement and the transactions contemplated thereby (including in connection with any stockholder litigation), including amounts payable to financial advisors (including investment banks), attorneys, accountants or proxy solicitors that are paid, incurred or expected to be incurred, payable or subject to reimbursement by Zalicus; and

 

    accrued expenses resulting from incurred but unbilled professional fees, clinical costs, preclinical costs or operational costs pertaining to goods or services previously provided to Zalicus as of the month end date prior to the determination date.

Zalicus Stock

Each share of Zalicus common stock issued and outstanding at the time of the merger will remain issued and outstanding and those shares will be unaffected by the merger. Zalicus stock options and other equity awards will also remain outstanding and be unaffected by the merger. As of the closing, current Zalicus stockholders will own (i) 14% of the outstanding shares of the combined company immediately after the merger if Zalicus has an amount of net cash as of the determination date equal to or less than $9.0 million, (ii) 17% of the outstanding shares of the combined company immediately after the merger if Zalicus has an amount of net cash as of the

 

100


Table of Contents

determination date greater than $9.0 million and less than $12.0 million or (iii) 19% of the outstanding shares of the combined company immediately after the merger if Zalicus has an amount of net cash as of the determination date equal to or in excess of $12.0 million; provided, that in no event will the current stockholders of Zalicus own less than 14% of the combined company.

Procedures for Exchanging Epirus Stock Certificates

Promptly after the effective time of the merger, Computershare Trust Company, N.A., as the exchange agent for the merger, will establish an exchange fund to hold the merger consideration to be paid to Epirus stockholders in connection with the merger. The exchange fund will consist of shares of Zalicus common stock and cash to be paid in lieu of fractional shares of Zalicus common stock.

As promptly as practicable, but no later than two business days, following the completion of the merger, the exchange agent will mail to each holder of record of Epirus capital stock a letter of transmittal and instructions for surrendering the record holder’s stock certificates in exchange for the merger consideration. Upon proper surrender of Epirus stock certificates together with a properly completed and duly executed letter of transmittal in accordance with the exchange agent’s instructions, the holder of such Epirus stock certificates will be entitled to receive shares representing the number of whole shares of Zalicus common stock issuable to such holder pursuant to the merger and cash in lieu of any fractional share of Zalicus common stock issuable to such holder. The surrendered certificates representing Epirus common stock and Epirus preferred stock will be cancelled.

After the effective time of the merger, each certificate representing shares of Epirus common stock or Epirus preferred stock that has not been surrendered will represent only the right to receive shares of Zalicus common stock issuable pursuant to the merger and cash in lieu of any fractional share of Zalicus common stock to which the holder of any such certificate is entitled, and any unpaid dividends and distributions as further described below. No interest shall be paid or accrued on any cash in lieu of fractional shares or any such unpaid dividends and distributions payable to holders of Epirus stock certificates.

Any holder or former holder of Epirus common stock or Epirus preferred stock may be subject to withholding under the Code, or under another provision of state, local or foreign tax law. To the extent such amounts are withheld and paid to the appropriate governmental entity, they will be treated as having been paid to the person to whom such amounts would otherwise have been paid.

HOLDERS OF EPIRUS COMMON STOCK AND EPIRUS PREFERRED STOCK SHOULD NOT SEND IN THEIR EPIRUS STOCK CERTIFICATES UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT WITH INSTRUCTIONS FOR THE SURRENDER OF EPIRUS STOCK CERTIFICATES.

Fractional Shares

No fractional shares of Zalicus common stock will be issuable pursuant to the merger to Epirus stockholders. Instead, each Epirus stockholder who would otherwise be entitled to receive a fraction of a share of Zalicus common stock, after aggregating all fractional shares of Zalicus common stock issuable to such stockholder, will be entitled to receive a cash payment in lieu of such fractional shares representing such holder’s proportionate interest, if any, in the proceeds from the sale by the exchange agent (reduced by any fees attributable to such sale) in one or more transactions of shares of Zalicus common stock equal to the excess of (i) the aggregate number of shares of Zalicus common stock issuable in exchange for the outstanding shares of Epirus common stock and preferred stock over (ii) the aggregate number of whole shares of Zalicus common stock to be distributed to holders of Epirus stock certificates.

Representations and Warranties

The merger agreement contains customary representations and warranties made by Zalicus and Merger Sub on the one hand and Epirus on the other, relating to their respective businesses, as well as other facts pertinent to

 

101


Table of Contents

the merger. These representations and warranties are subject to materiality, knowledge and other similar qualifications in many respects and expire at the effective time of the merger or termination of the merger agreement, as further described below. The representations and warranties of each of Zalicus and Merger Sub on the one hand and Epirus on the other have been made solely for the benefit of the other parties and those representations and warranties should not be relied on by any other person. In addition, those representations and warranties may be intended not as statements of actual fact, but rather as a way of allocating risk among the parties, may have been modified by the disclosure schedules attached to the merger agreement, are subject to the materiality standard described in the merger agreement, which may differ from what may be viewed as material by you, will not survive consummation of the merger and cannot be the basis for any claims under the merger agreement by the other parties after termination of the merger agreement, and were made only as of the date of the merger agreement or another date as is specified in the merger agreement.

Epirus made a number of representations and warranties to Zalicus and Merger Sub in the merger agreement, including representations and warranties relating to the following matters:

 

    corporate organization, power, authority and qualifications to do business and corporate standing;

 

    capitalization and ownership of subsidiaries;

 

    corporate power and authority to enter into the merger agreement and to consummate the transactions contemplated by the merger agreement;

 

    absence of any conflicts with organizational documents, required notices, consents or approvals, violations or breaches of any obligations or applicable laws as a result of, and the completion of corporate actions necessary for, entering into the merger agreement and of consummating the transactions contemplated by the merger agreement;

 

    financial statements and sufficiency of disclosure controls and procedures and internal controls;

 

    absence of certain changes or events since December 31, 2013;

 

    title to assets;

 

    leased property;

 

    intellectual property;

 

    material contracts and the absence of breaches of material contracts;

 

    absence of undisclosed liabilities;

 

    compliance with applicable laws;

 

    regulatory compliance;

 

    taxes and tax returns;

 

    employee benefit programs;

 

    labor and employment matters;

 

    environmental liability;

 

    insurance;

 

    books and records;

 

    government programs;

 

    related party transactions;

 

    legal proceedings and orders;

 

    illegal payments;

 

102


Table of Contents
    state takeover laws;

 

    vote required by Epirus stockholders;

 

    broker’s fees; and

 

    information relating to Epirus included in this joint proxy statement/prospectus and the registration statement on Form S-4.

Zalicus and Merger Sub made a number of representations and warranties to Epirus in the merger agreement, including representations and warranties relating to the following subject matters:

 

    corporate organization, power, authority and qualifications to do business and corporate standing;

 

    capitalization and ownership of subsidiaries;

 

    corporate power and authority to enter into the merger agreement and to consummate the transactions contemplated by the merger agreement;

 

    absence of any conflicts with organizational documents, required notices, consents or approvals, violations or breaches of any obligations, or applicable laws as a result of, and the completion of corporate actions necessary for, entering into the merger agreement and of consummating the transactions contemplated by the merger agreement;

 

    SEC filings and the financial statements contained in those filings, compliance with NASDAQ rules, sufficiency of internal controls and disclosure controls and procedures, and compliance with the Sarbanes-Oxley Act;

 

    absence of certain changes or events since December 31, 2013;

 

    title to assets;

 

    leased properties;

 

    intellectual property;

 

    material contracts and the absence of breaches of material contracts;

 

    absence of undisclosed liabilities;

 

    compliance with applicable laws;

 

    regulatory compliance;

 

    taxes and tax returns;

 

    employee benefit programs;

 

    labor and employment matters;

 

    environmental liability;

 

    insurance;

 

    books and records;

 

    government programs;

 

    related party transactions;

 

    legal proceedings and orders;

 

    illegal payments;

 

    state takeover laws;

 

103


Table of Contents
    vote required of Zalicus stockholders;

 

    opinion of financial advisor;

 

    broker’s fees; and

 

    information relating to Zalicus and Merger Sub included in this joint proxy statement/prospectus and the registration statement on Form S-4.

As noted above, significant portions of the representations and warranties are qualified as to “materiality” or “material adverse effect.” Under the merger agreement, a material adverse effect means any change, circumstance, condition, development, effect, event, occurrence, result or state of facts that, individually or when taken together with any other such change, circumstance, condition, development, effect, event, occurrence, result or state of facts, has or would reasonably be expected to: (i) prevent or materially delay the ability of the parties to consummate the transactions contemplated by the merger agreement or (ii) have a material adverse effect on the business, financial condition, assets, liabilities or results of operations of Zalicus or Epirus, as applicable, and their respective subsidiaries, taken as a whole, except that none of the following, as they apply to Zalicus, Epirus and any of their subsidiaries, shall be taken into account in determining whether there has been a material adverse effect:

 

    changes in general economic or political conditions or the securities market in general (whether as a result of acts of terrorism, war (whether or not declared), armed conflicts or otherwise) to the extent they do not disproportionately affect Zalicus or Epirus or any of their subsidiaries, taken as a whole, as applicable;

 

    changes in or affecting the industries which either Zalicus or Epirus operates, to the extent they do not disproportionately affect Zalicus or Epirus or any of their subsidiaries, taken as a whole, as applicable;

 

    changes, effects or circumstances resulting from the announcement or pendency of the merger agreement, the consummation of the merger or compliance with the terms of the merger agreement;

 

    any specific action taken at the written request of Zalicus, Merger Sub or Epirus, as applicable, or expressly required by the merger agreement;

 

    any changes in or affecting research and development, clinical trials or other drug development activities conducted by or on behalf of either Zalicus or Epirus, or any of their subsidiaries, in respect of each of their products or product candidates; and

 

    continued losses from operations or decreases in cash balances of either Zalicus or Epirus or any of their subsidiaries or on a consolidated basis among either Zalicus or Epirus and their respective subsidiaries.

Covenants; Conduct of Business Pending the Merger

During the period commencing on April 15, 2014 and ending at the earlier of the date of termination of the merger agreement and the effective time of the merger, Epirus agreed that it will conduct its business in the ordinary course in accordance with past practices and in material compliance with all applicable laws, rules, regulations, and certain contracts, and to take other agreed-upon actions, including, without limitation, using its reasonable efforts to preserve intact its current business organization, keep available the services of its current key employees, officers and other employees and maintain its relations and goodwill with suppliers, customers, landlords, creditors, licensors, licensees, employees and others Epirus has business relationships with and providing Zalicus prompt notice upon the occurrence of certain events or discovery of certain conditions, facts or circumstances. During the same period, Zalicus also agreed that it will conduct its business in the ordinary course consistent with past practices and in compliance with all applicable laws, rules, regulations and certain contracts, and to take other agreed-upon actions, including, without limitation, providing Epirus prompt notice upon the occurrence of certain events or discovery of certain conditions, facts or circumstances.

 

104


Table of Contents

Zalicus and Epirus also agreed that prior to the effective time of the merger, subject to certain limited exceptions set forth in the merger agreement, without the consent of the other party, each of Zalicus and Epirus would not, and would not cause or permit any of their subsidiaries to:

 

    declare, accrue, set aside or pay any dividend or made any other distribution in respect of any shares of capital stock; or repurchase, redeem or otherwise reacquire any shares of capital stock or other securities (except for shares of common stock from terminated employees);

 

    amend its certificate of incorporation, bylaws or other charter or organizational documents, or effect or become a party to any merger, consolidation, share exchange, business combination, recapitalization, reclassification of shares, stock split, reverse stock split or similar transaction, except as related to any of the transactions contemplated by the merger agreement;

 

    except for contractual commitments in place on April 15, 2013, sell, issue or grant, or authorize the issuance of: (i) any capital stock or other security (except (A) in the case of Zalicus, Zalicus common stock issued upon the exercise of outstanding options to purchase Zalicus common stock and (B) in the case of Epirus, options to purchase Epirus common stock issued to Epirus employees or consultants or shares of Epirus common stock issued upon the exercise of options to purchase Epirus common stock); (ii) any option, warrant or right to acquire any capital stock or any other security; or (iii) any instrument convertible into or exchangeable for any capital stock or other security;

 

    form any subsidiary or acquire any equity interest or other interest in any other entity;

 

    lend money to any person; incur or guarantee any indebtedness for borrowed money; issue or sell any debt securities or options, warrants, calls or other rights to acquire any debt securities; guarantee any debt securities of others; or make any capital expenditure or commitment;

 

    adopt, establish or enter into any employee plan; cause or permit any employee plan to be amended other than as required by law; hire any new employee or consultant; or grant, make or pay any severance, bonus or profit-sharing or similar payment to, or increase the amount of the wages, salary, commissions, fringe benefits or other compensation or remuneration payable to, any of its directors, employees or consultants;

 

    acquire any material asset or sell, lease or otherwise irrevocably dispose of (i) its intellectual property or (ii) any of its or its subsidiaries’ material assets or properties or grant any encumbrance with respect to such assets or properties, except in the ordinary course of business consistent with past practices;

 

    make, change or revoke any material tax election; file any material amendment to any tax return; adopt or change any accounting method in respect of taxes; change any annual tax accounting period; enter into any tax allocation agreement, tax sharing agreement or tax indemnity agreement, other than commercial contracts entered into in the ordinary course of business with vendors, customers or landlords; enter into any closing agreement with respect to any tax; settle or compromise any claim, notice, audit report or assessment in respect of material taxes; apply for or enter into any ruling from any tax authority with respect to taxes; surrender any right to claim a material tax refund; or consent to any extension or waiver of the statute of limitations period applicable to any material tax claim or assessment;

 

    enter into, amend or terminate any material contract;

 

    enter into or amend any agreement pursuant to which any other party is granted any joint or exclusive marketing or other joint or exclusive right of any type or scope with respect to any of its products or agree to any exclusivity, non-competition or similar provision or covenant restricting it or any of its subsidiaries from competing in any line of business, including in respect of any product or therapeutic area, or with any entity or person or in any area or engaging in any activity or business, including in respect of any product or therapeutic area, or pursuant to which any benefit or right would be required to be given or lost as a result of so competing or engaging, or which would have any such effect after the consummation of the merger;

 

105


Table of Contents
    materially reduce the amount of any insurance coverage provided by the existing insurance policies of it or any of its subsidiaries;

 

    materially change or implement accounting policies, methods or procedures, except as required by GAAP or applicable law;

 

    commence a lawsuit other than (i) for routine collection of bills; (ii) in such cases as either party in good faith determines that failure to commence such lawsuit would result in the material impairment of a valuable aspect of its or its subsidiaries’ business; or (iii) for a breach of the merger agreement or settle, or offer to settle, any material litigation, investigation, arbitration, proceeding or other claim or dispute involving or against it or any of its subsidiaries;

 

    fail to make any material payment with respect to any of its accounts payable or indebtedness in a timely manner in accordance with the terms thereof and consistent with past practice;

 

    issue any press release or make any disclosure (to any customers or employees of such party) regarding the merger or any other transaction contemplated by the merger agreement unless (i) the other party has approved such press release or disclosure (which approval shall not be unreasonably withheld or delayed); or (ii) such party has determined in good faith, upon the advice of outside legal counsel, that such disclosure is required by applicable law and, to the extent practicable, before such release or disclosure is issued or made, such party advises the other party of, and consults with the other party regarding, the text thereof, provided that Zalicus and Epirus may make any public statement in response to specific questions by the press, analysts, investors or those attending industry conferences or financial analyst conference calls, so long as any such statements are consistent with previous press releases, public disclosures or public statements made by Epirus or Zalicus, as applicable; or

 

    take any actions or cause any action to be taken that would reasonably be expected to prevent the merger from qualifying as a “reorganization” under Section 368(a) of the Code.

No Solicitation

The merger agreement contains provisions prohibiting Zalicus and Epirus from seeking a competing transaction, subject to specified exceptions described below. Under these “no solicitation” provisions, each of Zalicus and Epirus has agreed that neither it nor its subsidiaries, nor any of its officers, directors, employees, representatives, affiliates, advisors or agents shall directly or indirectly:

 

    initiate, solicit, seek or knowingly encourage or support any inquiries, proposals or offers that constitute or may reasonably be expected to lead to any competing proposal;

 

    engage or participate in, or knowingly facilitate, any discussions or negotiations regarding any inquiries, proposals or offers that constitute, or may reasonably be expected to lead to, a competing proposal;

 

    furnish to any person or entity (other than Zalicus or Epirus) any non-public information that could reasonably be expected to be used for the purposes of formulating any competing proposal;

 

    waive, terminate, modify or release any person or entity (other than Zalicus or Epirus and their respective affiliates) from any provision of or grant any permission, waiver or request under any “standstill” or similar agreement or obligation;

 

    enter into any letter of intent, agreement in principle or other similar type of agreement relating to a competing proposal, or enter into any agreement or agreement in principle requiring either Zalicus or Epirus, as the case may be, to abandon, terminate or fail to consummate the merger; or

 

    resolve, propose or agree to do any of the foregoing.

However, prior to the approval of the proposals relating to the merger set forth in this joint proxy statement/prospectus at the meeting of the stockholders of either Zalicus or Epirus, as the case may be, either Zalicus or

 

106


Table of Contents

Epirus may, after providing written notice to the other party, furnish nonpublic information to and engage in discussions or negotiations with any third party that makes an unsolicited bona fide written competing proposal that its board of directors in good faith, after consultation with its outside legal counsel and independent financial advisors, has determined constitutes or would reasonably be expected to lead to a superior competing proposal, only if:

 

    such party receives from such third party an executed confidentiality agreement the terms of which are not less restrictive to the third party than those contained in the confidentiality agreement between Zalicus and Epirus;

 

    such party receiving the competing proposal contemporaneously supplies to the other party (Zalicus or Epirus, as the case may be) any nonpublic information or access to any such nonpublic information granted to such third party to the extent it had not been previously provided or made available;

 

    such party has not breached the no solicitation provisions of the merger agreement; and

 

    the board of directors of Zalicus or Epirus, as the case may be, determines in good faith, after consultation with its outside legal counsel and financial advisors, that taking such actions would be required to comply with the fiduciary duties of the board of directors under applicable laws.

Zalicus and Epirus shall notify the other no later than twenty-four hours after receipt of any inquiries, discussions, negotiations, proposals or expressions of interest with respect to a competing proposal, and any such notice shall be made orally and in writing and shall indicate in reasonable detail the terms and conditions of such proposal, inquiry or contact, including price, and the identity of the offeror. Both Zalicus and Epirus shall keep the other fully informed, on a current basis, of the status and material developments (including any changes to the terms) of such competing proposal.

A competing proposal is any of the following proposals or offers, other than transactions contemplated by the merger agreement:

 

    a merger, tender offer, recapitalization, reorganization, liquidation, dissolution, business combination, share exchange, arrangement or consolidation, or any similar transaction involving a party to the merger agreement or any of its subsidiaries;

 

    a sale, lease, exchange, mortgage, pledge, transfer or other acquisition of fifteen percent (15%) or more of the assets of a party to the merger agreement or any of its subsidiaries, taken as a whole, in one or a series of related transactions;

 

    a purchase, tender offer or other direct or indirect acquisition, in one or a series of related transactions (including by way of merger, consolidation, share exchange, arrangement, consolidation or otherwise), of beneficial ownership of securities representing fifteen percent (15%) or more of the voting power of Zalicus or Epirus; or

 

    any other transaction the consummation of which would reasonably be expected to interfere with or prevent the merger.

A superior competing proposal is any written competing proposal (with all references to 15% in the definition of acquisition proposal being treated as references to 100% for these purposes) made by a third party that the board of directors of either Zalicus or Epirus, as the case may be, determines in good faith, after consultation with its outside legal counsel and financial advisor, and after taking into account all financial, legal, regulatory, and other aspects of the competing proposal, that the competing proposal is more favorable from a financial point of view to its stockholders than as provided in the merger agreement, is not subject to any financing condition, is reasonably capable of being completed on the terms proposed without unreasonable delay and includes termination rights on terms no less favorable than the terms set forth in the merger agreement, all from a third party capable of performing such terms.

 

107


Table of Contents

Either Zalicus or Epirus, as the case may be, may terminate the merger agreement if the board of directors, and/or any committee of the board of directors, of the other party has (each such action, a “change of recommendation” by the board of directors and/or any committee of the board of directors of Zalicus or Epirus, as the case may be):

 

    failed to make, withheld, withdrawn, amended, changed, qualified or publicly proposed to withhold, withdraw, amend, change or qualify in a manner adverse to either Zalicus or Epirus, as the case may be, its approval and recommendation to stockholders relating to the merger;

 

    knowingly made a public statement inconsistent with its recommendation to stockholders;

 

    failed to recommend against the acceptance of a tender offer within ten business days after the public announcement of any competing proposal; or

 

    approved, adopted, recommended or proposed publicly to approve, adopt or recommend any competing proposal.

Either Zalicus or Epirus, as the case may be, may also terminate the merger agreement if the other party enters into a definitive agreement to effect a superior competing proposal. If the merger agreement is terminated in connection with these provisions, or in the additional circumstances described in “—Termination of the Merger Agreement and Termination Fee” beginning on page 112, (i) Zalicus has agreed to promptly pay Epirus a fee of $1.1 million if the termination is a result of Zalicus’ board of directors making a change of recommendation, Zalicus failing to include in this proxy statement the recommendation of its board of directors or Zalicus entering into a definitive agreement to effect a superior competing proposal and (ii) Epirus has agreed to promptly pay Zalicus fee of $2.5 million if the termination is a result of Epirus’ board of directors making a change of recommendation, Epirus failing to include in this proxy statement the recommendation of its board of directors or Epirus entering into a definitive agreement to effect a superior competing proposal.

Disclosure Documents

As promptly as practicable following the date of the merger agreement, Zalicus and Epirus shall prepare and cause to be filed with the SEC this proxy statement and Zalicus, in cooperating with Epirus, shall prepare and file with the SEC a registration on Form S-4, in which this proxy statement is included, in connection with the registration under the Securities Act of 1933, as amended, of the shares of Zalicus common stock to be issued by virtue of the merger. Zalicus and Epirus agreed to use their reasonable best efforts to complete the foregoing within 20 business days after signing the merger agreement. Each of Zalicus and Epirus agreed to use their reasonable best efforts to cause the registration statement to become effective as promptly as practicable, and take all or any action required under any applicable federal, state and securities laws in connection with the issuance of shares of Zalicus common stock pursuant to the merger. Each of Zalicus, Merger Sub and Epirus agreed to furnish all information concerning itself and their subsidiaries, as applicable, to the other parties as the other parties may reasonably request in connection with such actions and the preparation of the registration statement and proxy statement. Each of Zalicus and Epirus agreed to use reasonable best efforts to cause this proxy statement to be mailed to its respective stockholders as promptly as practicable after the statement is declared effective by the SEC.

Meeting of Epirus’ Stockholders and Meeting of Zalicus’ Stockholders

Epirus is obligated under the merger agreement to call, give notice of and hold a meeting of its stockholders for the purposes of voting on the merger agreement and the transactions contemplated thereby. The Epirus stockholders’ meeting shall be held (on a date selected by Epirus in consultation with Zalicus) reasonably promptly after the mailing of this proxy statement.

Zalicus is obligated under the merger agreement to call, give notice of and hold a meeting of its stockholders for the purposes of voting on the issuance of shares of Zalicus common stock by virtue of the merger, amendments to its certificate of incorporation and an amendment to its option plan. The Zalicus

 

108


Table of Contents

stockholders’ meeting shall be held (on a date selected by Zalicus in consultation with Epirus) not later than forty-five (45) days after effective date of this proxy statement pursuant to the merger agreement. If on the scheduled date of the annual meeting, Zalicus has not obtained the requisite approval of its stockholders, Zalicus shall have the right to adjourn the annual meeting to a later date or dates, such later date or dates not to exceed 30 days from the original date that the stockholder meeting was scheduled.

Regulatory Approvals

Neither Zalicus nor Epirus is required to make any filings or to obtain approvals or clearances from any antitrust regulatory authorities in the United States or other countries to consummate the merger. In the United States, Zalicus must comply with applicable federal and state securities laws and NASDAQ rules and regulations in connection with the issuance of shares of Zalicus’ common stock in the merger, including the filing with the SEC of this proxy statement. The merger agreement provides that Epirus and Zalicus shall respond as promptly as is practicable in compliance with: (i) any inquiries or requests received from the Federal Trade Commission or the Department of Justice for information or documentation; and (ii) any inquiries or requests received from any other governmental body in connection with antitrust or competition matters.

Epirus Stock Options, Epirus Warrants and the Zalicus 401(k) Plan

At the effective time of the merger, each outstanding option, whether or not vested, to purchase Epirus common stock and warrant to purchase Epirus common stock or Epirus preferred stock unexercised prior to the effective time of the merger shall be converted into an option or warrant to purchase Zalicus common stock. All rights with respect to each Epirus option or warrant shall be assumed by Zalicus in accordance with its terms. Accordingly, from and after the effective time of the merger each option or warrant assumed by Zalicus may be exercised solely for shares of Zalicus common stock.

The number of shares of Zalicus common stock subject to each outstanding Epirus option or warrant assumed by Zalicus shall be determined by multiplying the number of shares of Epirus common stock, or in the case of each warrant, the number of shares of Epirus common stock or the number of shares of Epirus common stock issuable upon conversion of the shares of Epirus preferred stock issuable upon exercise of the warrant, that were subject to such option or warrant, as applicable, by the exchange ratio and rounding the resulting number down to the nearest whole number of shares of Zalicus common stock. The per share exercise price for the Zalicus common stock issuable upon exercise of each Epirus option or warrant assumed by Zalicus shall be determined by dividing the per share exercise price of Epirus common stock, or in the case of each warrant, the per share exercise price of Epirus common stock or preferred stock, subject to such option or warrant, as applicable, by the exchange ratio and rounding the resulting exercise price up to the nearest whole cent. Any restriction on the exercise of any option assumed by Zalicus shall continue in full force and effect and the term, exercisability, vesting schedule and other provisions of such option shall, subject to certain exceptions set forth in the merger agreement, otherwise remain unchanged. Likewise, any restriction on any warrant assumed by Zalicus shall continue in full force and effect and the term and other provisions of such warrant shall otherwise remain unchanged.

Unless Epirus requests otherwise in writing within five days prior to the closing date, Zalicus shall, effective as of at least one day prior to the closing date, have caused its 401(k) plan to be terminated. Zalicus shall provide to Epirus executed resolutions of its board of directors authorizing such termination and mandating that, as soon as reasonably practicable after the 401(k) plan termination date, the account balances of plan participants be distributed in accordance with the terms of the plan document and applicable IRS and Department of Labor guidance.

Indemnification of Officers and Directors

Pursuant to the merger agreement, upon the completion of the merger, Zalicus and Epirus agreed that all rights of indemnification, exculpation or advancement of expenses now existing in favor of, and all limitations on

 

109


Table of Contents

the personal liability of each present and former director and officer of Epirus and its subsidiaries as provided for in Epirus’ organizational documents in effect as of the date of the merger agreement, shall continue to be honored and in full force and effect for a period of six years after the closing of the merger. The certificate of incorporation and by-laws of the combined company will contain provisions with respect to indemnification, exculpation from liability and advancement of expenses that are at least as favorable as those currently in Epirus’ organizational documents and during such six year period following the effective time, Zalicus shall not and such provision may not be amended, repealed or otherwise modified for a period of six years after the completion of the merger in any manner that would materially and adversely affect the rights of the directors or officers of Epirus at the time of the completion of the merger. After the completion of the merger, the combined company will indemnify and hold harmless each present and former director and officer of Epirus in respect of acts or omissions occurring prior to the completion of the merger to the extent provided in any written indemnification agreement in effect as of the date of the merger agreement or required by Epirus’ organizational documents in effect immediately prior to closing. The merger agreement also provides that Zalicus shall purchase a six-year “tail” policy under its existing directors’ and officers’ liability insurance policy, with an effective date as of the closing.

Additional Agreements

Each of Epirus and Zalicus has agreed to use its commercially reasonable efforts to:

 

    cause the merger to qualify as a “reorganization” under Section 368(a) of the Code;

 

    file or otherwise submit all applications, notices, reports and other documents reasonably required to be filed with a governmental entity with respect to the merger and any transaction contemplated by the merger agreement and to promptly submit any additional information required by any such governmental entity;

 

    take all actions and satisfy all conditions necessary to consummate the merger and any transaction contemplated by the merger agreement;

 

    coordinate with the other in preparing and exchanging information and promptly provide the other with copies of all filings or submissions made in connection with the merger;

 

    obtain all consents, approvals or waivers reasonably required in connection with the transactions contemplated by the merger agreement; and

 

    lift any injunction prohibiting, or any other legal bar to, the merger or other transactions contemplated by the merger agreement.

NASDAQ Listing

Zalicus’ common stock currently is listed on The NASDAQ Capital Market under the symbol “ZLCS.” Pursuant to the merger agreement, Zalicus agreed to use its commercially reasonable efforts to cause the shares of Zalicus common stock being issued in the merger to be approved for listing on The NASDAQ Capital Market at or prior to the effective time of the merger. Prior to consummation of the merger, Zalicus intends to file an initial listing application with The NASDAQ Capital Market for companies conducting a business combination that results in a change of control. If such application is accepted, Zalicus anticipates that its common stock will continue to be listed on The NASDAQ Capital Market following the closing of the merger under the trading symbol “EPRS.”

Directors

The merger agreement provides that, prior to the effective time, the size of the board of directors of Zalicus shall be fixed at eight directors. Effective immediately following the effective time, Zalicus shall cause each of Geoffrey Duyk, Scott Rocklage, Amit Munshi, J. Kevin Buchi, Daotian Fu and two additional designees (who shall be named by Epirus at least seven days prior to the mailing of this proxy statement to the stockholders of

 

110


Table of Contents

Zalicus following the completion of a mutually agreeable director search and selection process and be subject to the reasonable consent of Zalicus, not to be unreasonably withheld, conditioned or delayed) to be appointed to the board of directors of Zalicus. Following such director search and selection process, Epirus has named, with Zalicus’ consent, William Hunter M.D. as its nominee to continue to serve on the board of directors of Zalicus after the merger. Zalicus shall cause all of the directors to be placed into classes and designated to certain committees, and shall cause Mark H.N. Corrigan, M.D. to be designated as the chairman of the board of directors of Zalicus.

Stockholder Proposals

Zalicus agreed to submit to its stockholders amendments to its sixth amended and restated certificate of incorporation, to, among other things, effect a reverse stock split of the issued and outstanding shares of Zalicus common stock, at a reverse split ratio mutually agreed to by Zalicus and Epirus, increase the number of authorized shares of Zalicus common stock from 200,000,000 to 300,000,000 in order to issue the requisite number of shares of Zalicus common stock to the stockholders of Epirus in connection with the merger and change the name from “Zalicus Inc.” to “EPIRUS Biopharmaceuticals, Inc.,” and an amendment to the 2004 Plan to increase the total number of shares of Zalicus common stock currently issuable thereunder by 3,000,000, after giving effect to the proposed reverse stock split, subject to the consummation of the merger.

Conditions to Completion of the Merger

The respective obligations of Zalicus and Epirus to complete the merger and the other transactions contemplated by the merger agreement are subject to the satisfaction or waiver of various conditions that include, in addition to other customary closing conditions, the following:

 

    there must not have been issued any temporary restraining order, preliminary or permanent injunction or other order preventing the consummation of the merger, and no law, statute, rule, regulation, ruling or decree shall be in effect which has the effect of making the consummation of the merger illegal;

 

    stockholders of Epirus must have approved and adopted the merger agreement and approved the merger, and stockholders of Zalicus must have approved the issuance of Zalicus common stock to the stockholders of Epirus in the merger, approved an amendment to Zalicus’ sixth amended and restated certificate of incorporation to effect the reverse stock split and approved an amendment to Zalicus’ sixth amended and restated certificate of incorporation to increase the number of authorized shares of Zalicus and to change the name of Zalicus effective upon the closing of the merger;

 

    there must not be any legal proceeding pending, or overtly threatened in writing by an official of any governmental body in which such governmental body indicates that it intends to conduct any legal proceeding or take any action challenging or seeking to restrain or prohibit the consummation of the merger; relating to the merger and seeking to obtain from Zalicus, acquisition subsidiary or Epirus any damages or other relief that may be material to Zalicus or Epirus; or seeking to prohibit or limit in any material and adverse respect a party’s ability to vote, transfer, receive dividends with respect to or otherwise exercise ownership rights with respect to the stock of Zalicus;

 

    the registration statement of which this document is a part shall have been declared effective under the Securities Act of 1933, as amended, and no stop order suspending the effectiveness of the registration agreement or this joint proxy statement/prospectus shall have been issued and no proceedings for such purpose shall have been initiated or threatened by the SEC or any other governmental authority and no similar proceeding in respect of this joint proxy statement/prospectus shall have been initiated or threatened by the SEC or any governmental authority;

 

    Zalicus and Epirus shall have agreed in writing on the calculation of Zalicus’ net cash as of the closing, or an independent accountant shall have delivered its report with respect to the same, pursuant to the terms of the merger agreement;

 

   

the representations and warranties of the other party set forth in the merger agreement must be true and correct without reference to any qualification as to materiality, except where a failure to be true and

 

111


Table of Contents
 

correct would not have a material adverse effect on the party making the representations and warranties; and

 

    the other party to the merger agreement must have performed in all material respects all of its agreements and covenants required by the merger agreement and provided a certificate to such effect.

The obligations of Zalicus and Merger Sub to complete the merger are also subject to the satisfaction or waiver of the following conditions:

 

    there must not have occurred, since the date of the merger agreement, any material adverse effect on Epirus and its subsidiaries that is continuing; and

 

    the Epirus stockholders shall have approved the amendment to the certificate of incorporation of Epirus.

The obligations of Epirus to complete the merger are also subject to the satisfaction or waiver of the following conditions:

 

    there must not have occurred, since the date of the merger agreement, any material adverse effect on Zalicus and its subsidiaries that is continuing; and

 

    Zalicus’ net cash as of the closing shall not be less than $3.0 million, as calculated pursuant to the terms of the merger agreement.

Termination of the Merger Agreement and Termination Fee

The merger agreement may be terminated at any time before the completion of the merger, whether before or after the required stockholder approvals to complete the merger have been obtained, as set forth below:

 

    by mutual written consent duly authorized by the board of directors of each of Epirus and Zalicus;

 

    by Epirus or Zalicus if the merger has not been completed by October 31, 2014; provided, that this right to terminate the merger agreement will not be available to any party whose action or failure to act has been a principal cause of the failure of the merger to be completed by such date and such action or failure to act constitutes a breach of the merger agreement; provided, further, that, in the event this proxy statement is still being reviewed or commented on by the SEC, either party shall be entitled to extend the date for termination of the merger agreement for an additional sixty (60) days and in the event of any dispute with respect to the net cash calculation, the date for termination of the merger agreement shall be extended until five business days after an independent accountant provides its report;

 

    by Epirus or Zalicus if a court or other governmental entity has issued a final and non-appealable order, decree or ruling or taken any other action that permanently restrains, enjoins or otherwise prohibits the merger;

 

    by Epirus or Zalicus if (i) the meeting of the stockholders of Zalicus (including any adjournments and postponements thereof) has been held and completed and Zalicus’ stockholders have taken a final vote on the proposals and (ii) the stockholders of Zalicus have not given the requisite approval to consummate the merger or any of the transactions contemplated by the merger agreement, including the reverse stock split; provided, that this right to terminate the merger agreement shall not be available to Zalicus if failure to obtain the approval of the Zalicus stockholders was caused by the action or failure to act of Zalicus and such action or failure to act constitutes a material breach by Zalicus of the merger agreement;

 

   

by Epirus or Zalicus if (i) the meeting of the stockholders of Epirus (including any adjournments and postponements thereof) has been held and completed and Epirus’ stockholders have taken a final vote on the merger agreement and the transactions contemplated by the merger agreement and (ii) the

 

112


Table of Contents
 

stockholders of Epirus have not given the requisite approval to consummate the merger; provided, that this right to terminate the merger agreement shall not be available to Epirus if failure to obtain the approval of the Epirus stockholders was caused by the action or failure to act of Epirus and such action or failure to act constitutes a material breach by Epirus of the merger agreement;

 

    by Epirus, at any time prior to the approval of the issuance of the shares of Zalicus common stock pursuant to the merger, if:

 

    a change of recommendation by the board of directors and/or any committee of the board of directors of Zalicus occurs; or

 

    Zalicus fails to include in this proxy statement the recommendation of its board of directors;

 

    by Zalicus, at any time prior to the adoption of the merger agreement by the stockholders of Epirus, if:

 

    a change of recommendation by the board of directors and/or any committee of the board of directors of Epirus occurs; or

 

    Epirus fails to include in this proxy statement the recommendation of its board of directors; or

 

    by Epirus or Zalicus if the other party has breached any of its representations, warranties, covenants or agreements contained in the merger agreement or if any representation or warranty of the other party has become inaccurate, in either case such that the conditions to the closing of the merger would not be satisfied as of time of such breach or inaccuracy; provided, however, that if such breach or inaccuracy is curable, then the merger agreement will not terminate as a result of a particular breach or inaccuracy until the earlier of the expiration of a 30-day period after delivery of written notice of such breach or inaccuracy and the breaching party ceasing to exercise commercially reasonable efforts to cure such breach; or

 

    by Epirus or Zalicus if the other party has entered into a definitive agreement to effect a superior competing proposal.

Zalicus shall pay to Epirus a termination fee of $1.1 million if the merger agreement is terminated as a result of Zalicus’ board of directors making a change of recommendation, as a result of Zalicus failing to include in this proxy statement the recommendation of its board of directors or as a result of Zalicus entering into a definitive agreement to effect a superior competing proposal.

Epirus shall pay to Zalicus a termination fee of $2.5 million if the merger agreement is terminated as a result of Epirus’ board of directors making a change of recommendation, as a result of Epirus failing to include in this proxy statement the recommendation of its board of directors or as a result of Epirus entering into a definitive agreement to effect a superior competing proposal.

Amendment

The merger agreement may be amended by an instrument in writing signed on behalf of each of Zalicus and Epirus with the approval of the respective boards of directors of Epirus and Zalicus at any time, except that after the merger agreement has been adopted by the stockholders of Epirus or Zalicus, no amendment which by law requires further approval by the stockholders of Epirus or Zalicus, as the case may be, shall be made without such further approval.

Expenses

The merger agreement provides all fees and expenses incurred in connection with the merger agreement and the transactions contemplated thereby shall be paid by the party incurring such expenses, except that the fees and expenses associated with the filing of the NASDAQ listing application in connection with the transactions contemplated by the merger agreement shall be shared equally by Zalicus and Epirus.

 

113


Table of Contents

Stockholder Litigation

Between April 28, 2014 and May 2, 2014, three putative class action lawsuits were filed by purported stockholders of Zalicus in the Business Litigation Session of the Massachusetts Superior Court, Suffolk County, against Zalicus, Merger Sub, the members of Zalicus’ board of directors and Epirus. Plaintiff has since voluntarily dismissed one of these actions, Civil A. No. 14-1380. The remaining two actions, Civ. A. No. 14-1381 and Civ. A. No. 14-1455, have been consolidated into a single action, In re Zalicus Shareholder Litigation, Lead Civ. A. No. 14-1381 (the “Massachusetts Action”). The Massachusetts Action alleges that the Zalicus board of directors breached its fiduciary duties, and that Epirus and Merger Sub aided and abetted the purported breaches, in connection with the proposed merger. The Massachusetts Action seeks relief including, among other things, a declaration that the merger agreement was entered into in breach of fiduciary duties and is unlawful and unenforceable, an order enjoining defendants from proceeding with the merger, an order enjoining defendants from consummating the merger unless and until additional procedures are implemented and all material information in connection with the proposed merger is disclosed, rescission of the merger or any terms thereof to the extent implemented (or an award of rescissory damages), compensatory damages and interest, and an award of all costs of the Massachusetts Actions, including reasonable attorneys’ fees and experts’ fees.

Between May 1, and May 16, 2014, three putative class action lawsuits were filed by purported stockholders of Zalicus in the Court of Chancery of the State of Delaware against Zalicus, Zalicus’ directors, Epirus and/or Merger Sub, Stein v. Zalicus Inc., et al., No. 9602; Do v. Zalicus, Inc., et al., No. 9636; and Mendlowitz, et al. v. Zalicus Inc., et al., No. 9664 (the “Delaware Actions”). Amended complaints were filed in the Stein and Do actions on May 27. The Delaware Actions allege that the Zalicus board of directors breached their fiduciary duties, and Epirus and/or Merger Sub aided and abetted the purported breaches, in connection with the proposed merger. The Delaware Actions seek relief including, among other things, a declaration that the merger agreement was entered into in breach of fiduciary duties and is unlawful and unenforceable, an order preliminary and permanently enjoining the proposed merger, an order enjoining defendants and others from consummating the merger unless and until additional procedures are implemented and directing defendants to take certain other actions, an order rescinding the merger or any terms thereof (or awarding rescissory damages if the merger is consummated), a judgment directing that defendants account to plaintiffs and the putative class for all damages and for all profits and any special benefits obtained as a result of the alleged breaches of fiduciary duties, and/or an award of all costs of the Delaware Action, including reasonable attorneys’ fees and experts’ fees.

The defendants deny the allegations in the Massachusetts and Delaware Actions, believe the actions are meritless, and intend to vigorously defend the actions.

As discussed herein, the percentage of the combined company that Zalicus stockholders will own as of the closing of the merger is subject to adjustment at the closing based on the level of Zalicus’ net cash as of a certain determination date prior to closing, as net cash is defined and is to be calculated under the merger agreement. The level of net cash as of that determination date will be reduced by certain specified liabilities, as defined further in the merger agreement, including all out-of-pocket costs in connection with the Massachusetts and Delaware Actions (and any other similar litigation that may be filed), including amounts payable to financial advisors and attorneys that are paid, incurred or expected to be incurred, payable or subject to reimbursement by Zalicus. Thus, the Zalicus parties’ costs in defending the actions insofar as they reduce net cash may reduce the percentage of the combined company that Zalicus stockholders will own as of the closing of the merger.

 

114


Table of Contents

VOTING AGREEMENTS

In connection with the execution of the merger agreement, Amit Munshi, the president and chief executive officer and a director of Epirus, Thomas Shea, the chief financial officer of Epirus, Kim Seth, Ph.D., the chief business officer of Epirus, J. Kevin Buchi, a director of Epirus, Livzon, Bestow Mind Limited, 5AM Co-Investors III, L.P., 5AM Ventures III, L.P., Montreux Equity Partners V, L.P., Montreux Equity Partners IV, L.P., TPG Biotechnology Partners III, L.P., and Adage Capital Management, LLC entered into voting agreements with Zalicus and Epirus under which such stockholders have agreed to vote in favor of the merger and against any alternative acquisition proposal, agreement or transaction. As of April 15, 2014, these entities collectively beneficially own or control approximately 95% of the voting power of Epirus on an as-converted to common stock basis. These voting agreements grant Zalicus irrevocable proxies to vote any shares of Epirus stock over which such stockholder has voting power in favor of each of the Epirus proposals described elsewhere in this joint proxy statement/prospectus and against any alternative acquisition proposal, agreement or transaction.

In connection with the execution of the merger agreement, current directors and officers of Zalicus, including Mark H.N. Corrigan, M.D., the president and chief executive officer and a director of Zalicus, Justin A. Renz, executive vice president, chief financial officer, treasurer and secretary of Zalicus, and Sally W. Crawford, Frank Haydu, William Hunter, M.D., Michael Kauffman, M.D., and W. James O’Shea, each a director of Zalicus, who collectively beneficially own or control approximately 3% of Zalicus’ outstanding common stock as of April 15, 2014, also entered into voting agreements with Zalicus and Epirus under which such stockholder has agreed to vote in favor of the Zalicus proposals that relate to the merger described elsewhere in this joint proxy statement/prospectus and against any alternative acquisition proposal, agreement or transaction. Each of these voting agreements grant Epirus irrevocable proxies to vote any shares of Zalicus stock over which such stockholder has voting power in favor of each of the Zalicus proposals described elsewhere in this joint proxy statement/prospectus and against any alternative acquisition proposal, agreement or transaction.

Each stockholder executing a voting agreement has made representations and warranties to Zalicus and Epirus regarding ownership and unencumbered title to the shares thereto, such stockholder’s power and authority to execute the voting agreement, and due execution and enforceability of the voting agreement. Unless otherwise waived, all of these voting agreements prohibit the sale, assignment, transfer or other disposition by the stockholder of their respective shares of Zalicus or Epirus stock, or the entrance into an agreement or commitment to do any of the foregoing, except for transfers by will or by operation of law, in which case the voting agreement shall bind the transferee. Each stockholder executing a voting agreement has also waived its statutory appraisal rights in connection with the merger.

The voting agreements will terminate at the earlier of the effective time of the merger, termination of the merger agreement in accordance with its terms or upon mutual written consent of such stockholder, Zalicus and Epirus.

 

115


Table of Contents

MANAGEMENT OF ZALICUS BEFORE AND AFTER THE MERGER

The following is a discussion of the management of Zalicus regarding various corporate governance matters and related information, before and after the merger.

Directors and Executive Officers of Zalicus Prior to the Merger

 

Director

   Age      Class   

Director Since

Mark H.N. Corrigan, M.D.

     56       II    December 2009

Sally W. Crawford

     60       II    June 2007

Frank Haydu

     66       I    August 2004

William Hunter, M.D.

     51       I    December 2009

Michael Kauffman, M.D.

     50       III    June 2006

W. James O’Shea

     64       III    June 2007

Mark H.N. Corrigan, M.D.—Dr. Corrigan is a Class II director who has served as a member of the Zalicus board of directors since December 2009. Dr. Corrigan has served as president and chief executive officer of Zalicus since January 2010. Dr. Corrigan was executive vice president, research & development of Sepracor Inc., a publicly-traded pharmaceutical company, from April 2003 until December 2009. Prior to joining Sepracor Inc., Dr. Corrigan spent 10 years with Pharmacia & Upjohn, a publicly-traded pharmaceutical company acquired by Pfizer, Inc. in 2002, most recently as Group Vice President of Global Clinical Research and Experimental Medicine. Prior to joining the pharmaceutical industry, Dr. Corrigan spent five years in academic research at the University of North Carolina Medical School, focusing on psychoneuroendocrinology. Dr. Corrigan serves on the board of directors of Cubist Pharmaceuticals, Inc., a publicly-traded biopharmaceutical company. Dr. Corrigan currently serves as a director of Avanir Pharmaceuticals where he is chairman of the Scientific Committee and serves on the Nominating and Governance Committee. Dr. Corrigan holds a B.A. and an M.D. from the University of Virginia and subsequently received specialty training in Psychiatry at Cornell and Maine Medical Center. The board of directors believes Dr. Corrigan’s qualifications to sit on the board include his years of leadership experience in the pharmaceutical industry as well as his considerable studies in the field.

Sally W. Crawford—Ms. Crawford is a Class II director who has served as a member of the Zalicus board of directors since June 2007. From April 1985 until January 1997, Ms. Crawford served as Chief Operating Officer of Healthsource, Inc., a publicly-traded managed care organization headquartered in New Hampshire. During her tenure at Healthsource, Inc., Ms. Crawford held a variety of positions and responsibilities, including leading that company’s Northern Region operations and marketing efforts. Since January 1997, Ms. Crawford has been a healthcare consultant. Ms. Crawford serves on the board of directors for Hologic, Inc., a publicly-traded manufacturer and supplier of medical equipment, Exact Sciences Corporation, a publicly held molecular diagnostics company, Insulet Corporation, a publicly held medical device company, Universal American Corp., a publicly held healthcare company and several private healthcare companies. Ms. Crawford holds a B.A. in English from Smith College and an M.S. in communications from Boston University. The board of directors believes Ms. Crawford’s qualifications to sit on the board include her exposure to various companies in a consulting and board member capacity as well as her experience at a public company in the healthcare field.

Frank Haydu—Mr. Haydu is a Class I director who has served as a member of the Zalicus board of directors since August 2004 and as chairman of the board of directors since February 2009. Mr. Haydu is a professional director and consultant to public and private businesses. Mr. Haydu currently serves as a director of several private companies. In the past five years, Mr. Haydu has also served on the board of directors of iParty Corp., a publicly held retail chain and Moldflow Corporation, a publicly-traded injection molding software company. Mr. Haydu holds a B.A. in economics from Muhlenberg College. The board of directors believes Mr. Haydu’s qualifications to sit on the board include his broad-based experience in business and finance, including his extensive background in business consulting and management.

 

116


Table of Contents

William Hunter, M.D.—Dr. Hunter is a Class I director who has served as a member of the Zalicus board of directors since December 2009. Dr. Hunter has been the President and Chief Executive Officer of Cardiome Pharma Corp., a publicly-traded drug development and research company, since July 2012. Dr. Hunter has served on the board of directors of Cardiome since June 2007. Dr. Hunter founded Angiotech Pharmaceuticals, Inc., a publicly-traded pharmaceutical and medical device company in November 1992, served as a director and its President and Chief Executive Officer until October 2011. In January of 2011, Angiotech voluntarily filed under the Canada Companies’ Creditors Arrangement Act the (“CCAA”) to pursue a restructuring supervised by the Supreme Court of British Columbia, and also voluntarily filed a petition under Chapter 15 of the United States Bankruptcy Code to obtain recognition and enforcement in the United States of the restructuring being pursed under the CCAA proceedings. The Angiotech restructuring was completed in May 2011. Dr. Hunter holds a B.Sc. from McGill University and an M.Sc. and M.D. from the University of British Columbia. The board of directors believes that Dr. Hunter’s qualifications to sit on the board include the insight he has gained from founding and leading pharmaceutical companies as well as his medical background.

Michael Kauffman M.D.—Dr. Kauffman is a Class III director who has served as a member of the Zalicus board of directors since June 2006. Dr. Kauffman has been the President and Chief Executive Officer of Karyopharm Therapeutics Inc. since January 2011 and has been a Science Advisor to Bessemer Venture Partners since 2008. Dr. Kauffman was the Chief Medical Officer of Onyx Pharmaceuticals Inc., a publicly-traded biotechnology company, from January 2010 until December 2010. Dr. Kauffman was the Chief Medical Officer of Proteolix, Inc., a privately held pharmaceutical company, from April 2009 until November 2009, when it was acquired by Onyx. Dr. Kauffman was the President and Chief Executive Officer of EPIX Pharmaceuticals, Inc., a publicly-traded biotechnology company that underwent liquidation proceedings in 2009, until July 2008. Dr. Kauffman joined Predix Pharmaceuticals, Inc., the predecessor to EPIX, in September 2002, as President and Chief Executive Officer. From 1997 to 2002, he held a number of senior medical and program leadership positions at Millennium Pharmaceuticals, Inc., then a publicly held biotechnology company, including Vice President, Medicine and VELCADE Program Leader as well as co-founder and Vice President of Medicine at Millennium Predictive Medicine, a wholly-owned subsidiary of Millennium. Dr. Kauffman also served as Medical Director at Biogen Corporation (now Biogen Idec Inc., a publicly-traded biotechnology company). Dr. Kauffman serves on the board of directors of Verastem Inc., a publicly-traded biotechnology company. In the past five years, Dr. Kauffman has also served on the board of directors of EPIX. Dr. Kauffman received an M.D. and Ph.D. in molecular biology and biochemistry from Johns Hopkins and holds a B.A. in biochemistry from Amherst College. Dr. Kauffman trained in Internal Medicine at Beth Israel Deaconess and Massachusetts General Hospitals. He is board certified in internal medicine. The board of directors believes that Dr. Kauffman’s qualifications to sit on the Board include the combination of his significant business and leadership experience at public life sciences companies and his medical and scientific background.

W. James O’Shea—Mr. O’Shea is a Class III director who has served as a member of the Zalicus board of directors since June 2007. From April to August 2007, Mr. O’Shea served as Vice Chairman at Sepracor Inc., then a publicly held pharmaceutical company. From October 1999 to March 2007, Mr. O’Shea was President and Chief Operating Officer at Sepracor, where he was responsible for successfully building that organization’s commercial infrastructure. Prior to Sepracor, Mr. O’Shea was Senior Vice President of Sales and Marketing and Medical Affairs for Zeneca Pharmaceuticals, a business unit of Astra Zeneca Plc, a publicly held biopharmaceutical company. While at Zeneca, he also held several management positions of increasing responsibility in international sales and marketing in the U.S. and U.K. Mr. O’Shea is past Chairman of the National Pharmaceutical Council and serves on the board of directors of BTG plc, a public specialty pharmaceutical company and several other private biopharmaceutical companies. In the past five years, Mr. O’Shea has also served on the board of directors of MAP Pharmaceuticals, Inc., a publicly-traded pharmaceutical company and Penwest Pharmaceutical Co., a publicly-traded specialty pharmaceutical company. Mr. O’Shea is a graduate of Liverpool Lord Byron University, where he received an honors degree in applied physics from the Institute of Physics. The board of directors believes that Mr. O’Shea’s qualifications to sit on the board include his extensive experience with life sciences companies, including in the areas of sales and marketing, as well as his executive leadership and management expertise.

 

117


Table of Contents

Executive Officers

Information is set forth below concerning Zalicus’ existing executive officers:

 

Name

   Age     

Position

Mark H.N. Corrigan, M.D.(1)

     56       President and Chief Executive Officer

Justin Renz

     42       Executive Vice President, Chief Financial Officer, Treasurer and Secretary

 

(1) Mark H.N. Corrigan, M.D. is also a director of Zalicus and his biographical information appears on page 118.

Justin A. Renz—Mr. Renz joined Zalicus in September 2006 as vice president, finance and treasurer, was appointed as its senior vice president, chief financial officer and treasurer in July 2009 and has served as its executive vice president, finance and treasurer since March 2012. In March 2014, Mr. Renz was also appointed as secretary of Zalicus. From August 2005 to September 2006, Mr. Renz was Director, Accounting and Financial Operations at EMD Serono, Inc., a publicly-traded biopharmaceutical company. From 2002 to 2005, he was Senior Director, Global Accounting and Finance at Coley Pharmaceutical Group, a publicly-traded biopharmaceutical company acquired by Pfizer Inc. in 2007, and has also held financial and accounting positions at ArQule, Inc., Millipore Corporation and Arthur Andersen LLP. Mr. Renz is a certified public accountant and holds a B.A. in Economics/Accounting from the College of the Holy Cross, a Masters in the Science of Taxation from Northeastern University and an M.B.A. from Suffolk University.

Directors and Executive Officers Continuing After the Merger

Board of Directors

Information is set forth below concerning the proposed members of the Board of Directors after the merger:

 

Director

   Age      Class   

Director Since

J. Kevin Buchi

     58       II    N/A

Mark H.N. Corrigan, M.D.

     56       III    December 2009

Geoffrey Duyk

     55       I    N/A

Daotian Fu

     51       I    N/A

Amit Munshi

     46       III    N/A

Scott Rocklage

     59       I    N/A

William Hunter, M.D.

     51       II    December 2009

In addition to the directors set forth above, one designee to the Board of Directors named by Epirus shall be appointed as a director immediately following the effective time of the merger. The designee will be appointed as a Class III director.

J. Kevin Buchi—Mr. Buchi served as Corporate Vice President, Global Branded Products for Teva Pharmaceutical Industries (NYSE: TEVA) from the completion of the acquisition of Cephalon, Inc. in October 2011, until his retirement in May 2012. Prior to joining Teva, Mr. Buchi was Cephalon’s Chief Executive Officer. Mr. Buchi serves as a member of the board of directors of Forward Pharma, Stemline Therapeutics (NASDAQ: STML), Alexza Pharmaceuticals (NASDAQ: ALXA) and Benitec Biopharma (ASX: BLT.AX). Mr. Buchi graduated from Cornell University with a degree in chemistry and received a Master of Management degree from the J.L. Kellogg Graduate School of Management at Northwestern University. He is a Certified Public Accountant.

Mark H.N. Corrigan, M.D.—Dr. Corrigan is a Class III director who has served as a member of the Zalicus board of directors since December 2009. Dr. Corrigan has served as president and chief executive officer of Zalicus since January 2010. Dr. Corrigan was Executive Vice President, Research & Development of Sepracor

 

118


Table of Contents

Inc., a publicly-traded pharmaceutical company, from April 2003 until December 2009. Prior to joining Sepracor Inc., Dr. Corrigan spent 10 years with Pharmacia & Upjohn, a publicly-traded pharmaceutical company acquired by Pfizer, Inc. in 2002, most recently as Group Vice President of Global Clinical Research and Experimental Medicine. Prior to joining the pharmaceutical industry, Dr. Corrigan spent five years in academic research at the University of North Carolina Medical School, focusing on psychoneuroendocrinology. Dr. Corrigan serves on the board of directors of Cubist Pharmaceuticals, Inc., a publicly-traded biopharmaceutical company. Dr. Corrigan currently serves as a director of Avanir Pharmaceuticals where he is chairman of the Scientific Committee and serves on the Nominating and Governance Committee. Dr. Corrigan holds a B.A. and an M.D. from the University of Virginia and subsequently received specialty training in Psychiatry at Cornell and Maine Medical Center. The board of directors believes Dr. Corrigan’s qualifications to sit on the Board include his years of leadership experience in the pharmaceutical industry as well as his considerable studies in the field.

Geoffrey Duyk—Dr. Duyk is currently a partner at TPG and managing director for TPG Biotech and TPG Alternative and Renewable Technologies. Dr. Duyk is a former board member and President of Research & Development at Exelixis Inc. (NASDAQ: EXEL). Previously, Dr. Duyk was one of the founding scientific staff at Millennium Pharmaceuticals Inc. (now Millennium: The Takeda Oncology Company) and served as Vice President of Genomics at Millennium Pharmaceuticals Inc. He also was an Assistant Professor at Harvard Medical School and Assistant Investigator of the Howard Hughes Medical Institute. Dr. Duyk is a member of the Board of Directors of the American Society of Human Genetics and a member of the Board of Trustees for Case Western Reserve University. He is a member of the scientific advisory board for Jackson Laboratories (Bar Harbor, ME).

Daotian Fu—Dr. Fu is Vice President of Livzon Pharmaceutical Group. He is also General Manager of Livzon, an early stage biologics development company partially funded by Livzon Pharmaceutical Group. Prior to joining Livzon, Dr. Fu was Vice President at Genzyme for over 10 years where he was responsible for the quality control and analytical development of all biologics in development. He also held several technical and management positions, including Director at Charles River Lab and Manager of Neose Pharmaceuticals.

William Hunter, M.D.—Dr. Hunter is a Class II director who has served as a member of the Zalicus board of directors since December 2009. Dr. Hunter has been the President and Chief Executive Officer of Cardiome Pharma Corp., a publicly-traded drug development and research company, since July 2012. Dr. Hunter has served on the board of directors of Cardiome since June 2007. Dr. Hunter founded Angiotech Pharmaceuticals, Inc., a publicly-traded pharmaceutical and medical device company in November 1992, served as a director and its President and Chief Executive Officer until October 2011. In January of 2011, Angiotech voluntarily filed under the Canada Companies’ Creditors Arrangement Act the (“CCAA”) to pursue a restructuring supervised by the Supreme Court of British Columbia, and also voluntarily filed a petition under Chapter 15 of the United States Bankruptcy Code to obtain recognition and enforcement in the United States of the restructuring being pursed under the CCAA proceedings. The Angiotech restructuring was completed in May 2011. Dr. Hunter holds a B.Sc. from McGill University and an M.Sc. and M.D. from the University of British Columbia. The board of directors believes that Dr. Hunter’s qualifications to sit on the Board include the insight he has gained from founding and leading pharmaceutical companies as well as his medical background.

Amit Munshi—Mr. Munshi is the former CEO of Percivia LLC and also was a co-founder, and the chief business officer, at Kythera Biopharmaceuticals (NASDAQ: KYTH). Previously, he held leadership positions at Amgen (NASDAQ: AMGN), including General Manager, Nephrology Europe. Mr. Munshi has more than 24 years of pharmaceutical and biotechnology experience both in the United States and internationally, including general management, product development, licensing, and business development. Mr. Munshi serves on the boards of Cynvenio Biosystems, Inc. and Oxeia Biopharmaceuticals, Inc.

Scott Rocklage—Dr. Rocklage, joined 5AM Ventures in 2003 as a Venture Partner and became a Managing Partner in 2004. Dr. Rocklage has over three decades of healthcare management experience with strategic leadership responsibilities that led to FDA approval of three U.S. New Drug Applications (Omniscan™, Teslascan® and Cubicin®), and he has entered multiple drug candidates into clinical trials. Dr. Rocklage has

 

119


Table of Contents

served as Chairman and CEO of Cubist Pharmaceuticals, President and CEO of Nycomed Salutar, and has also held various R&D positions at Salutar and Catalytica. Dr. Rocklage currently serves as Board Chairman of Relypsa (NASDAQ: RLYP), Rennovia, Kinestral, Novira and K2 as well as on the Boards of Achaogen (NASDAQ: AKAO), Pulmatrix, and Epirus. Dr. Rocklage was formerly Executive Chairman of Ilypsa (acquired by Amgen), Miikana (acquired by EntreMed) and Semprus (acquired by Teleflex). Dr. Rocklage received his B.S. in Chemistry from the University of California, Berkeley and his PhD in Chemistry from the Massachusetts Institute of Technology where he conducted research in the laboratory of Richard R. Schrock (Nobel Prize in Chemistry in 2005). Dr. Rocklage is based in the Waltham, MA office.

Executive Officers

Information is set forth below concerning Zalicus’ expected executive officers after the merger:

 

Name

   Age     

Position

Amit Munshi

     46       President and Chief Executive Officer

Thomas Shea

     54       Chief Financial Officer

Robert Ticktin

     52       Senior Vice President and General Counsel

Kim Seth, Ph.D.

     45       Chief Business Officer

Michael Wyand, DVM, Ph.D.

     58       Senior Vice President of Clinical, Regulatory and Manufacturing

Amit Munshi—Mr. Munshi has served as Epirus’ CEO since 2012. He is the former CEO of Percivia LLC and also was a co-founder, and the chief business officer, at Kythera Biopharmaceuticals (NASDAQ: KYTH). Previously, he held leadership positions at Amgen (NASDAQ: AMGN), including General Manager, Nephrology Europe. Mr. Munshi has more than 24 years of pharmaceutical and biotechnology experience both in the United States and internationally, including general management, product development, licensing, and business development. Mr. Munshi serves on the boards of Cynvenio Biosystems, Inc. and Oxeia Biopharmaceuticals, Inc.

Thomas Shea—Mr. Shea has served as Epirus’ CFO since 2013. He was formerly the CFO of Euthymics, Neurovance and EBI Life Sciences, three affiliated companies developing neurological and pain drug candidates. Previously, Mr. Shea was the CFO of Tolerx, an autoimmune company, for six years and Cubist Pharmaceuticals (NASDAQ: CBST), an acute care company, for ten years. At Cubist, Mr. Shea was an integral part of the leadership team transitioning the company from a private to a public company.

Robert Ticktin—Mr. Ticktin has served as Epirus’ Senior Vice President and General Counsel since April 2014. Prior to that, since 2004, Mr. Ticktin was Associate General Counsel at Amgen, where he held various positions in the legal department, including leading legal support for mergers & acquisitions, licensing, alliance management, international operations and, most recently, global production and procurement activities. Mr. Ticktin commenced his legal career in New York City at global law firms, Simpson Thacher & Bartlett and Latham & Watkins. Mr. Ticktin received a B.A. in Economics from The Ohio State University and a J.D. from Fordham University School of Law.

Kim Seth, Ph.D.—Dr. Seth is a former Executive Director at Pfizer (NYSE: PFE), where he held both global operational and strategy roles. At Pfizer, he helped lead the design and execution of the R&D operational turnaround and strategic efforts to enter and expand into new markets, e.g. cancer immunotherapy. He joined Epirus in February 2014 with over 15 years’ experience across a range of biomedical and commercial settings. Prior to Pfizer, Dr. Seth was Vice President at Goldman Sachs& Co. (NYSE: GS), covering global Specialty and Large Cap Pharma, and led multiple licensing deals and M&A activities at Epix Pharmaceuticals (formerly NASDAQ: EPIX). Dr. Seth holds a Ph.D. in Neurobiology and an AB cum laude in Economics, both from Harvard University.

Michael Wyand, DVM, Ph.D.—Dr. Wyand is a former Senior Vice President of Global Operations of Percivia LLC where he worked on a portfolio of biosimilar molecules for emerging markets. Prior to that,

 

120


Table of Contents

Dr. Wyand was Senior Vice President of Development at BioAssets Development Corporation (sold to Cephalon Inc.) and was a Senior Vice President of Research and Development at Therion Biologics. At Therion, Dr. Wyand was responsible for designing and building a cGMP compliant manufacturing facility and taking two cancer vaccines for prostate and pancreatic cancer through later stage development. At the start of his career Dr. Wyand was President and Chief Scientific Officer of Mason Laboratories and served as Vice President of Preclinical Development at Genzyme Transgenics Corp. Prior to his 25 years of biopharmaceutical experience, Dr. Wyand trained in comparative pathology at Harvard Medical School, received his DVM from Purdue University and graduated as a University Scholar, Phi Beta Kappa, from the University of Connecticut.

EXECUTIVE COMPENSATION OF THE COMBINED COMPANY OFFICERS

This section discusses the material components of the executive compensation program for the individuals who were Epirus’ executive officers in the year ended December 31, 2013 and who will serve as executive officers of Zalicus following the merger, referred to herein as the “named executive officers.” The “named executive officers” and their current positions are as follows:

 

    Amit Munshi, President and Chief Executive Officer;

 

    Tom Shea, Chief Financial Officer; and

 

    Michael Wyand, DVM, Ph.D., Senior Vice President, Clinical and Regulatory.

This discussion may contain forward-looking statements that are based on Epirus’ current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that Epirus adopts following the completion of the merger may differ materially from the currently planned programs summarized in this discussion.

2013 SUMMARY COMPENSATION TABLE

The following table sets forth information concerning the compensation of Epirus’ named executive officers for the year ended December 31, 2013.

 

Name and Principal Position

  Salary ($)     Option
Awards ($)(1)
    Non-Equity Incentive
Plan Compensation
($)(2)
    Total  

Amit Munshi

    375,000        33,977        111,563        408,977   

President and Chief Executive Officer

       

Tom Shea(3)

    160,417        59,840        34,039        220,257   

Chief Financial Officer

       

Michael Wyand

    280,000        6,161        59,500        286,161   

SVP, Clinical and Regulatory

       

 

(1) Amounts reflect the full grant-date fair value of stock options granted during 2013 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. Epirus provides information regarding the assumptions used to calculate the value of all stock awards and option awards made to executive officers in Note 15 to the Epirus Consolidated Financial Statements in Appendix I of this Form S-4.
(2) Amounts in this column represent cash bonuses paid in March 2014. For further information about Epirus’ annual bonus program for 2013, see “Narrative to Summary Compensation Table.”
(3) Tom Shea was hired on June 1, 2013. The amounts in this row represent compensation for his partial year of employment.

 

121


Table of Contents

NARRATIVE TO SUMMARY COMPENSATION TABLE

2013 Salaries

The named executive officers receive a base salary to compensate them for services rendered to Epirus. The base salary payable to each named executive officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role and responsibilities. Base salaries were increased in 2014 as follows:

 

Named Executive Officer

   Base Salary  

Amit Munshi

     450,000   

Tom Shea

     300,000   

Michael Wyand

     300,000   

2013 Bonuses

Epirus’ named executive officers’ target bonus percentages for 2013 were determined as percentages of their base salaries, which percentages were negotiated upon hire. The following table sets forth the 2013 target bonus percentages:

 

Named Executive Officer

   Base Salary  

Amit Munshi

     35

Tom Shea

     25

Michael Wyand

     25

The actual annual cash bonuses awarded to each named executive officer for 2013 performance were 80% of their target bonuses (except in the case of Mr. Shea, whose bonus was prorated to reflect his mid-year start date) and are set forth above in the Summary Compensation Table in the column entitled “Non-Equity Incentive Plan Compensation.”

Equity Compensation

Certain of Epirus’ named executive officers currently hold stock options. Specifically, in 2013, Messrs. Munshi, Shea and Wyand were granted stock options as set forth below. The stock options generally vest 25% on the first anniversary of the applicable grant date and then in equal monthly installments thereafter. The options will be exercisable for three months following termination of service, unless such termination is due to death or disability, in which case the option will be exercisable for 12 months following termination.

The following table sets forth the stock options granted to Epirus’ named executive officers in the 2013 fiscal year.

 

Named Executive Officer

   Granted  

Amit Munshi

     283,139   

Tom Shea

     374,000   

Michael Wyand

     51,345   

Other Elements of Compensation

Retirement Plans

Epirus currently maintains a 401(k) retirement savings plan for Epirus employees, including named executive officers, who satisfy certain eligibility requirements. Epirus’ named executive officers are eligible to participate in the 401(k) plan on the same terms as other full-time employees. The Internal Revenue Code allows

 

122


Table of Contents

eligible employees to defer a portion of their compensation, within prescribed limits, on a pre-tax basis through contributions to the 401(k) plan. Epirus believes that providing a vehicle for tax-deferred retirement savings though Epirus’ 401(k) plan adds to the overall desirability of Epirus’ executive compensation package and further incentivizes Epirus’ employees, including named executive officers, in accordance with Epirus’ compensation policies.

Employee Benefits and Perquisites

All of Epirus’ full-time employees, including named executive officers, are eligible to participate in Epirus’ health and welfare plans, including:

 

    medical, dental and vision benefits;

 

    medical and dependent care flexible spending accounts;

 

    short-term and long-term disability insurance; and

 

    life insurance.

Epirus also reimburses all full-time employees, including named executive officers, for commuting and parking expenses up to a maximum of $300 per month, as well as certain cell phone costs.

Epirus believes the health and welfare plans and perquisites described above are necessary and appropriate to provide a competitive compensation package to the named executive officers.

No Tax Gross-Ups

Epirus does not make gross-up payments to cover Epirus’ named executive officers’ personal income taxes that may pertain to any of the compensation or perquisites paid or provided by the company.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

The following table summarizes the number of shares of common stock underlying outstanding stock option awards for each named executive officer as of December 31, 2013. No stock awards were outstanding as of such date.

 

Name

   Grant
Date(1)
     Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
     Option
Exercise
Price
($)
     Option
Expiration
Date
 

Amit Munshi

     6/28/12         365,811         558,347         0.12         6/28/22   

Amit Munshi

     12/20/12         70,284         210,850         0.12         12/20/22   

Amit Munshi

     5/14/13         70,785         212,354         0.12         5/14/23   

Tom Shea

     7/8/13         0         374,000         0.16         7/8/23   

Michael Wyand

     6/28/12         108,300         180,500         0.12         6/28/22   

Michael Wyand

     12/20/12         21,964         65,890         0.12         12/20/22   

Michael Wyand

     5/14/13         12,836         38,509         0.12         5/14/23   

 

(1) The stock options vest 25% on the first anniversary of the applicable grant date and then in equal monthly installments thereafter.

Executive Compensation Arrangements

Epirus entered in an offer letter with Amit Munshi, the Chief Executive Officer, dated May 17, 2012. The letter provides for a base salary of $375,000 and the opportunity to earn an annual bonus of up to 35% of base

 

123


Table of Contents

salary. The offer letter also provided for the initial grant of an option to purchase 924,158 shares and additional future grants of options to maintain Mr. Munshi’s 4% equity interest in Epirus if the number of shares of Epirus increased due to the purchase of additional tranches of Series A preferred shares, subject to his continued employment as Chief Executive Officer. Such purchase (and increase) did not occur. In addition, the letter provided for additional option grants and a one-time cash bonus of up to $100,000, each at the discretion of the board of directors, if certain performance goals were achieved by the Company within 12 months of the commencement of Mr. Munshi’s employment. These performance goals were not achieved. Twenty-five percent of the shares subject to the stock options granted to Mr. Munshi were to vest on the one-year anniversary of his start date, subject to his continued employment with Epirus, and the remaining were to vest monthly over the next 36 months in equal monthly installments, subject to continued employment. The offer letter also provides that if, within 12 months following either an Acquisition or an Asset Transfer (each as defined in Epirus’s Certificate of Incorporation), Epirus terminates Mr. Munshi’s employment without Cause (as defined in the offer letter) or he resigns for Good Reason (as defined in the offer letter and which generally includes (i) a material reduction in Mr. Munshi’s authority, duties or responsibilities or (ii) a material reduction in Mr. Munshi’s annual base salary (other than a reduction generally applied across the management team or company), then 100% of the shares subject to Mr. Munshi’s options will become fully vested and he will be entitled to continue to receive for a period of nine months his monthly base salary and health benefits at active employee rates. If, in the absence of an Acquisition or an Asset Transfer, Epirus terminates Mr. Munshi’s employment without Cause or he resigns for Good Reason, then he will be entitled to continue to receive for a period of six months his monthly base salary and health at active employee rates.

Epirus entered into an offer letter with Thomas Shea, the Chief Financial Officer, dated April 29, 2013. The letter provides for an annual base salary of $275,000 and eligibility for an annual bonus of 25% of his base salary. In addition, the offer letter provided for the grant of an option to purchase 374,000 shares of Epirus’s common stock. Twenty-five percent of the shares subject to the stock options granted to Mr. Shea were to vest on the one-year anniversary of his start date, subject to his continued employment with Epirus, and the remaining were to vest monthly over the next 36 months in equal monthly installments, subject to continued employment. The offer letter also provides that if, within three months prior to or 12 months following either an Acquisition or an Asset Transfer (each as defined in Epirus’s Certificate of Incorporation), Epirus terminates his employment without Cause (as defined in the offer letter) or he resigns for Good Reason (as defined in the offer letter and which generally includes (i) a material reduction in Mr. Shea’s authority, duties or responsibilities, (ii) a material reduction in Mr. Shea’s annual base salary or (iii) a material change in the geographic location at which Mr. Shea must perform his services) then 100% of the shares subject to the options will become fully vested .

Epirus entered into an offer letter with Michael Wyand, the Senior Vice President of Clinical & Regulatory, dated June 15, 2012. The letter provides for an annual salary of $280,000 and eligibility for an annual bonus of 25% of his base salary. In addition, the offer letter provided for the grant of an option to purchase 288,800 shares of Epirus’s common stock and additional future grants of options to maintain his equity interest in Epirus if the number of shares of Epirus increased due to the purchase of additional tranches of Series A preferred shares, subject to his continued employment. Twenty-five percent of the shares subject to the stock options granted to Mr. Wyand were to vest on the one-year anniversary of his start date, subject to his continued employment with Epirus, and the remaining were to vest monthly over the next 36 months in equal monthly installments, subject to continued employment. If within three months prior to or 12 months following either an Acquisition or Asset Transfer (each as defined in the company’s certificate of incorporation), Epirus terminates Mr. Wyand’s employment without Cause or he resigns for Good Reason, then 100% of the shares subject to his option will become fully vested and he will be entitled to continue to receive base salary and health benefits at active employee rates. If, in the absence of an Acquisition or an Asset Transfer, Epirus terminates Mr. Wyand’s employment without Cause or he resigns for Good Reason (as defined in Mr. Wyand’s offer letter (which is the same definition as in Mr. Shea’s offer letter, summarized above)), then he will be entitled to continue to receive for a period of six months his monthly base salary and health benefits at active employee rates.

All executive officers have agreed to one-year post-termination non-solicitation and no-hire covenants.

 

124


Table of Contents

2011 Equity Incentive Plan

Epirus’s 2011 Equity Incentive Plan provides for the grant of stock options (incentive and nonstatutory), stock appreciation rights, restricted stock and restricted stock units. An aggregate of 5,584,660 shares were initially reserved for issuance under the plan. The plan is administered by the Epirus board of directors. As described above, all outstanding stock options under the 2011 Equity Incentive Plan will be converted into options with respect to Zalicus common stock in connection with the merger. The outstanding options generally vest 25% on the first anniversary of the vesting commencement date and then in equal monthly installments thereafter. The options will be exercisable for three months following termination of service, unless such termination is due to death or disability, in which case the option will be exercisable for 12 months following termination.

EPIRUS’ DIRECTOR COMPENSATION

The following table shows the compensation earned by J. Kevin Buchi, a current director of Epirus who will serve as a member of the Zalicus board of directors following the merger, for the year ended December 31, 2013:

 

Name

   Fees Earned
or Paid in
Cash ($)
     Option
Awards
($)(1)(2)
     Total ($)  

J. Kevin Buchi

     8,750         16,000         24,750   

 

(1) Amounts reflect the full grant-date fair value of stock options granted during 2013 computed in accordance with ASC Topic 718, rather than the amounts paid to or realized by the named individual. Information regarding the assumptions used to calculate the value of all option awards made to Epirus directors is provided in Note 15 to the Epirus Consolidated Financial Statements in Appendix I of this Form S-4.
(2) As of December 31, 2013, Mr. Buchi held 100,000 stock options. The options vest in equal monthly installments over 36 months, commencing on their grant date of July 21, 2013.
(3) None of Epirus’ other non-employee directors received compensation for their director services in 2013.

Mr. Buchi’s director compensation is provided pursuant to a letter between Epirus and him, dated June 17, 2013. The letter provides that he will be paid an annual retainer of $25,000 per year paid quarterly, as well as an audit committee chair retainer of $10,000. In addition, the letter provides for an additional retainer of $20,000 per year for consultancy services relating to Epirus’ general business of up to four hours per month subject to a maximum of 50 hours. No such services have been provided and therefore no such additional retainer has been paid. The letter also provided for the grant of his initial stock options, and provides for the grant of additional options to purchase 20,000 shares annually starting at the first anniversary of his initial engagement, subject to the same vesting schedule as the initial grant with an exercise price equal to the market value on the applicable anniversary date.

* * * * *

 

125


Table of Contents

ZALICUS’ DIRECTOR COMPENSATION

Director Compensation Table

The following table shows the compensation earned by William Hunter, M.D., a current director of Zalicus, who shall serve as a member of the Zalicus board of directors following the merger, for the year ended December 31, 2013:

 

Name

   Fees Earned or
Paid in Cash($)
     Option Awards
($)(1)(2)
     Total
($)
 

William Hunter

     42,000         7,118         49,118   

 

(1) Amount reflects the aggregate grant date fair value of the director’s stock option awards, calculated in accordance with FASB ASC Topic 718. For purposes of this calculation, the estimate of forfeitures related to service-based vesting conditions have been disregarded. There can be no assurance that the FASB ASC Topic 718 amounts will ever be realized by the director. See note 12 of “Notes to Consolidated Financial Statements” in Zalicus’ Annual Report on Form 10-K filed with the SEC on March 14, 2014 for a discussion of assumptions made by Zalicus in determining the grant date fair value of its equity awards for the fiscal year ended December 31, 2013.
(2) The aggregate number of stock option awards outstanding as of December 31, 2013 for Dr. Hunter was 12,500.

Non-Employee Director Compensation Policy

On June 3, 2010, based on the recommendation of the nominating and corporate governance committee, the board of directors adopted a new non-employee director compensation policy, or the 2010 director compensation policy, which was effective beginning July 1, 2010. Under the terms of the 2010 director compensation policy, William Hunter, M. D. receives an annual cash retainer in the amount of $30,000, payable quarterly, for his service as a director. Dr. Hunter also receives an annual cash retainer of $5,000, payable quarterly, for each standing committee of the board of directors he serves on. As the chairperson of the Nominating and corporate governance committee, Dr. Hunter receives $7,000 per year for his or her service.

Under the terms of the 2010 director compensation policy, Dr. Hunter is also entitled to receive an annual grant of options under Zalicus’ 2004 Plan to purchase 2,500 shares of Zalicus common stock for service at and after the Annual Meeting of Stockholders, which, among other terms, expire ten years after the date of grant and become fully exercisable on the first anniversary of the date of grant. Under the terms of the 2010 director compensation policy, newly appointed or elected non-employee directors will be entitled to a stock option grant to purchase 30,000 shares of Zalicus common stock. Options granted upon initial appointment or election to the board of directors vest over four years, with 25% vesting on the first anniversary of the grant and 6.25% quarterly thereafter. The exercise price of all options granted to non-employee directors may not be less than 100% of the fair market value of Zalicus common stock on the date of the grant. On June 6, 2013, in accordance with the 2010 director compensation policy. Dr. Hunter was granted an option to purchase 2,500 shares of common stock, with an exercise price of $3.48 per share.

Under the terms of the 2010 director compensation policy, Zalicus also reimburses members of the board of directors for any out-of-pocket expenses incurred by them in connection with services provided in such capacity. Directors who are also Zalicus employees receive no additional compensation for serving as directors.

Indemnification Agreements

Zalicus has entered into indemnification agreements with Dr. Corrigan and Dr. Hunter to give each of them additional contractual assurances regarding the scope of the indemnification set forth in Zalicus’ certificate of incorporation and by-laws and to provide additional procedural protections.

 

126


Table of Contents

THE BOARD OF DIRECTORS AND ITS COMMITTEES

Director Independence

Directors of Zalicus Prior to the Merger

As required by the listing standards of The NASDAQ Capital Market, or NASDAQ, the board of directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each of Messrs. Haydu, Hunter, Kauffman and O’Shea and Ms. Crawford are “independent” within the meaning of the rules and regulations of NASDAQ. To make this determination, our board of directors reviews all relevant transactions or relationships between each director and Zalicus, its senior management and its independent auditors. During this review, the board considers whether there are any transactions or relationships between directors or any member of their immediate family (or any entity of which a director or an immediate family member is an executive officer, general partner or significant equity holder) and members of our senior management or their affiliates. The board consults with Zalicus’ general counsel and outside corporate counsel to ensure that the board’s determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent NASDAQ listing standards, as in effect from time to time. Dr. Corrigan, our president and chief executive officer, is not an “independent director” within the meaning of the NASDAQ listing standards.

Directors Continuing After the Merger

Epirus believes that each of Mr. Buchi, Dr. Duyk, Dr. Rocklage and Dr. Hunter will be “independent” within the meaning of the rules and regulations of NASDAQ after the consummation of the merger. Epirus also believes that each of Mr. Munshi, Dr. Fu and Dr. Corrigan will not be an “independent director” within the meaning of NASDAQ listing standards.

Board Meetings and Attendance

Mr. Frank Haydu is chairman of the board of directors. The Zalicus board of directors held eight meetings during the fiscal year ended December 31, 2013. Each of the directors attended at least 75% of the meetings of the board of directors and the committees of the board of directors on which he or she served during the fiscal year ended December 31, 2013 (in each case, which were held during the period for which he or she was a director and/or a member of the applicable committee), except for Dr. Kauffman who attended at least 62% of such meetings during the fiscal year ended December 31, 2013. Zalicus encourages its directors to attend the Annual Meeting of Stockholders and believes that attendance at the Annual Meeting of Stockholders is just as important as attendance at meetings of the Board of Directors and its committees. The following directors of Zalicus attended the 2013 Annual Meeting of Stockholders: Ms. Crawford, Dr. Corrigan, Mr. Haydu, Dr. Hunter, Dr. Kauffman and Mr. O’Shea.

BOARD COMMITTEES BEFORE AND AFTER THE MERGER

The Zalicus board of directors has a standing audit, compensation and corporate governance and nominating committee, each of which is comprised solely of independent directors, and is described more fully below. The charters for the audit, compensation and corporate governance and nominating committees are all available on Zalicus’ website (www.zalicus.com) under “Investors” at “Corporate Governance.”

Board Committees Before the Merger

The board of directors has a standing Audit, Compensation and Corporate Governance and Nominating Committee, each of which is comprised solely of independent directors, and is described more fully below. Each of the Audit, Compensation and Corporate Governance and Nominating Committee operates pursuant to a written charter and each committee reviews and assesses the adequacy of its charter and submits its charter to the

 

127


Table of Contents

board for approval. The charters for the Audit, Compensation and Corporate Governance and Nominating Committees are all available on our website (www.zalicus.com) under “Investors and Media” at “Corporate Governance.”

Audit Committee

Mr. Haydu is the chairperson and Dr. Kauffman and Mr. O’Shea are the other members of the Zalicus Audit Committee. The board of directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each member of the Zalicus Audit Committee is “independent” within the meaning of the rules and regulations of NASDAQ and the Securities and Exchange Commission, or the SEC. The board of directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that Mr. Haydu is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC.

The primary responsibilities of the Zalicus Audit Committee include to: (a) assist the board of directors in its oversight of (i) the integrity of the Zalicus financial statements, (ii) compliance with legal and regulatory requirements, (iii) the qualifications and independence of the Zalicus independent auditors, and (iv) the performance of the Zalicus internal audit function and independent auditors; (b) appoint, evaluate, compensate, retain and oversee the Zalicus independent auditors and the audit process (including receiving and reviewing reports from the independent auditors and resolving any disagreements between management and the independent auditors regarding financial reporting) and to approve or pre-approve all audit, audit-related and other services, if any, to be provided by the independent auditors; (c) review with management, internal auditors and the independent auditors, Zalicus’ internal controls and its financial and critical accounting practices; and (d) prepare the report required to be prepared by the Audit Committee pursuant to the rules of the SEC for inclusion in the Zalicus annual proxy statement or annual report on Form 10-K. The Audit Committee and the board of directors have established procedures for the receipt, retention, and treatment of complaints received by Zalicus regarding accounting, internal accounting controls, or auditing matters and for confidential, anonymous submission by Zalicus employees of concerns regarding questionable accounting or auditing matters. The Audit Committee also administers our related party transaction approval policy. The Audit Committee also has the authority to hire independent counsel and other advisors to carry out the Audit Committee’s duties, and Zalicus is required to provide appropriate funding, as the Audit Committee determines, to compensate the independent auditors and any advisors retained by the Audit Committee.

During the fiscal year ended December 31, 2013, the Audit Committee met five times.

Compensation Committee

Ms. Crawford is the chairperson and Dr. Kauffman and Mr. O’Shea are the other members of the Zalicus Compensation Committee. The board of directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each member of the Zalicus Compensation Committee is “independent” within the meaning of the rules and regulations of NASDAQ. In addition, each member qualifies as an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code and is a “non-employee director” within the meaning of the rules of the SEC.

The primary responsibilities of the Compensation Committee are to: (a) review and approve corporate goals and objectives relevant to compensation of the Zalicus chief executive officer and the other executive officers and evaluate the performance of the chief executive officer and the other executive officers in light of these goals and objectives, and based on such evaluation, determine and approve the compensation of the chief executive officer and the other executive officers either as a committee or together with the other independent board members; (b) review and approve grants and awards under the Zalicus incentive compensation and equity-based compensation plans and otherwise administer such plans and make recommendations to the board of directors with respect to such plans; (c) review and consider the results of any non-binding stockholder advisory votes on executive compensation

 

128


Table of Contents

matters; (d) make recommendations regarding compensation of the board of directors and (e) review and discuss with management the Compensation Discussion and Analysis disclosure and any prepare other reports required to be prepared by the Compensation Committee pursuant to the rules of the SEC for inclusion in the Zalicus annual proxy statement. The Compensation Committee also has the authority to retain and obtain the advice of compensation consultants, legal counsel and/or other advisors to carry out the Compensation Committee’s duties, provided that the Compensation Committee must have direct responsibility for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel or other advisor retained by the Compensation Committee and Zalicus is required to provide appropriate funding, as the Compensation Committee determines, to compensate the compensation consultants, legal counsel and advisors retained.

During the fiscal year ended December 31, 2013, the Compensation Committee met seven times.

Corporate Governance and Nominating Committee

Dr. Hunter is the chairperson and Ms. Crawford and Mr. Haydu are the other members of the Zalicus Corporate Governance and Nominating Committee. The board of directors has determined, upon the recommendation of the Corporate Governance and Nominating Committee, that each member of the Zalicus Corporate Governance and Nominating Committee is “independent” within the meaning of the rules and regulations of NASDAQ.

The primary responsibilities of the Corporate Governance and Nominating Committee are to: (a) recommend individuals to the board of directors for nomination, election or appointment as members of the board of directors and its committees, consistent with the criteria included in the Zalicus Corporate Governance Guidelines; (b) establish policies for stockholders to recommend candidates for consideration for nomination as a member of the board of directors; (c) oversee the evaluation of the performance of the board of directors; (d) oversee the chief executive officer’s and other senior management’s succession plans; and (e) take a leadership role in shaping the corporate governance, including developing and reviewing on an on-going basis the Corporate Governance Guidelines. In identifying and recommending nominees for positions on the board of directors, the Corporate Governance and Nominating Committee places primary emphasis on the criteria set forth under “Selection and Composition of board of directors” in the Zalicus Corporate Governance Guidelines, namely: (1) ethics, integrity, values, expertise, skills and knowledge useful to the oversight of the company’s business; (2) the independence standards of NASDAQ, (3) diversity of viewpoints, backgrounds, experiences and other demographics as discussed below; (4) business or other relevant experience, particularly in the areas of accounting and finance, management, corporate governance and experience in the pharmaceutical and drug development industry; and (5) the extent to which the interplay of the nominee’s expertise, skills, knowledge and experience with that of the other members of the board of directors will build a board of directors that is effective, collegial and responsive to the operations and interests of Zalicus and its stockholders.

The Corporate Governance and Nominating Committee does not set specific, minimum qualifications that nominees must meet in order to be recommended to the board of directors, but rather believes that each nominee should be evaluated based on his or her individual merits, taking into account the needs of Zalicus and the composition of the board of directors. Additionally, neither the Corporate Governance and Nominating Committee nor the board of directors has a specific policy with regard to the consideration of diversity in identifying director nominees; however, both may consider the diversity of background and experience of a director nominee in the context of the overall composition of the board of directors at that time, such as diversity of knowledge, skills, experience, geographic location, age, gender, and ethnicity. Members of the Corporate Governance and Nominating Committee discuss and evaluate possible candidates in detail and suggest individuals to explore in more depth. Once a candidate is identified whom the Committee wants to seriously consider and move toward nomination, the Chairperson of the Corporate Governance and Nominating Committee enters into a discussion with that candidate.

 

 

129


Table of Contents

The Corporate Governance and Nominating Committee will consider candidates recommended by stockholders. The policy adopted by the Corporate Governance and Nominating Committee provides that candidates recommended by stockholders are given appropriate consideration in the same manner as other candidates.

During fiscal year ended December 31, 2013, the Corporate Governance and Nominating Committee met three times.

Non-Management Director Meetings

In addition to the meetings of the committees of the board of directors described above, in connection with board of directors meetings, the non-management directors met four times in executive session during the fiscal year ended December 31, 2013. The chairman of the board of directors presided at these executive sessions. The Audit Committee and the Board of Directors have established a procedure whereby interested parties may make their concerns known to Non-Management Directors, which is described on the Zalicus website.

Board of Directors Leadership Structure

Mr. Haydu, an independent member of our board of directors, has served as its chairman since February 2009. The independent members of the board of directors have periodically reviewed the board’s leadership structure and have determined that Zalicus and our stockholders are well served with this structure because of the role played by the chairman.

The chairman of the board of directors provides leadership to the board of directors and works with the board of directors to define its activities and the calendar for fulfillment of its responsibilities. The chairman of the board of directors approves the meeting agendas after input from the board of directors and management, facilitates communication among directors and presides at meetings of our board of directors and stockholders. The chairman also presides over meetings of the independent directors.

The chairman of the board of directors, the chairman of the Corporate Governance and Nominating Committee, the chief executive officer and other members of the board of directors work together to provide oversight of Zalicus’ management and affairs. Mr. Haydu, as the chairman of the board of directors, and Dr. Hunter, as the chairman of the Corporate Governance and Nominating Committee, have together overseen the maintenance and improvement of governance practices that require and support high levels of performance by members of the board of directors. Mr. Haydu’s leadership encourages open discussion and deliberation, with a thoughtful evaluation of risk, to support the board’s decision-making. Mr. Haydu’s leadership also encourages communication among the directors, and between management and the board of directors, to facilitate productive working relationships. Under Mr. Haydu’s guidance, the board of directors also ensures an appropriate balance and focus among key board responsibilities such as strategic development, review of operations, risk oversight and management succession planning.

Board Committees After the Merger

Upon the consummation of the merger, Mr. Haydu, Dr. Kauffman and Mr. O’Shea will resign from the Zalicus Audit Committee, and the board of directors will appoint Mr. Buchi to the committee, as chairperson, and two additional designees, to be named by the board of directors. Epirus believes that Mr. Buchi is an “audit committee financial expert” within the meaning of the rules and regulations of the SEC, and is “independent” within the meaning of the rules and regulations of NASDAQ and the SEC.

Upon the consummation of the merger, Ms. Crawford, Dr. Kauffman and Mr. O’Shea will resign from the Zalicus Compensation Committee, and the board of directors will appoint Dr. Rocklage to the committee, as chairperson, and one additional designee, to be named by the board of directors. Epirus believes that

 

130


Table of Contents

Dr. Rocklage is “independent” within the meaning of the rules and regulations of NASDAQ and qualifies as an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code and a “non-employee director” within the meaning of the rules of the SEC.

Upon the consummation of the merger, Ms. Crawford and Mr. Haydu will resign from the Zalicus Corporate Governance and Nominating Committee, and the board of directors will appoint Dr. Duyk to the committee, with Dr. Duyk to serve as chairperson. Dr. Hunter will continue to serve as a member of the committee. Epirus believes that Dr. Duyk and Dr. Hunter are “independent” within the meaning of the rules and regulations of NASDAQ.

The Board of Directors’ Role in Risk Oversight

The board of directors plays an important role in risk oversight at Zalicus through direct decision-making authority with respect to significant matters as well as through the oversight of management by the board of directors and its committees. In particular, the board of directors administers its risk oversight function through (1) the review and discussion of regular periodic reports to the board of directors and its committees on topics relating to the risks that Zalicus faces, (2) the required approval by the board of directors (or a committee of the board of directors) of significant transactions and other decisions, (3) the direct oversight of specific areas of Zalicus’ business by the Audit, Compensation and Corporate Governance and Nominating Committees, and (4) regular periodic reports from the auditors and other outside consultants regarding various areas of potential risk, including, among others, those relating to the our internal control over financial reporting. The board of directors also relies on management to bring significant matters impacting Zalicus to the attention of the board of directors.

Pursuant to the Audit Committee’s charter, the Audit Committee is responsible for reviewing and discussing with management, internal auditors and Zalicus’ independent accountants, Zalicus’ system of internal control, its financial and critical accounting practices, and policies relating to risk assessment and management. As part of this process, the Audit Committee discusses Zalicus’ major financial risk exposures and steps that management has taken to monitor and control such exposure. In addition the Audit Committee has established procedures for the receipt, retention and treatment of complaints received by Zalicus regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submissions by employees of concerns regarding questionable accounting or accounting matters.

Because of the role of the board of directors and the Audit Committee in risk oversight, the board of directors believes that any leadership structure that it adopts must allow it to effectively oversee the management of the risks relating to Zalicus’ operations. The board of directors acknowledges that there are different leadership structures that could allow it to effectively oversee the management of the risks relating to Zalicus’ operations and believes its current leadership structure enables it to effectively provide oversight with respect to such risks.

Compensation Committee Interlocks and Insider Participation

No member of Zalicus’ Compensation Committee was or is an officer or employee of Zalicus or any of its subsidiaries and all members are considered independent as such term is defined in the rules and regulations of NASDAQ.

 

131


Table of Contents

Audit Committee Report

AUDIT COMMITTEE REPORT(1)

The Audit Committee has reviewed the Zalicus audited financial statements for the fiscal year ended December 31, 2013 and has discussed these statements with management and Ernst & Young LLP, Zalicus’ independent registered public accounting firm. Zalicus management is responsible for the preparation of the company’s financial statements and for maintaining an adequate system of disclosure controls and procedures and internal control over financial reporting for that purpose. Ernst & Young LLP is responsible for expressing an opinion on the conformity of the audited financial statements with generally accepted accounting principles, their judgments as to the quality, not just the acceptability, of Zalicus’ accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. The Audit Committee is responsible for providing independent, objective oversight of Zalicus’ accounting functions and internal controls.

The Audit Committee also received from, and discussed with, Ernst & Young LLP the written disclosures and other communications that Zalicus’ independent registered public accounting firm is required to provide to the Audit Committee, including the matters required to be discussed by Public Company Accounting Oversight Board, or PCAOB, Auditing Standard No. 16, Communications with Audit Committees. That standard requires our independent registered public accounting firm to discuss with the Audit Committee, among other things, the following:

 

    methods to account for significant unusual transactions;

 

    the effect of significant accounting policies in controversial or emerging areas for which there is a lack of authoritative guidance or consensus;

 

    the process used by management in formulating particularly sensitive accounting estimates and the basis for the independent registered public accounting firm’s conclusions regarding the reasonableness of those estimates; and

 

    disagreements with management regarding financial accounting and reporting matters and audit procedures.

Ernst & Young LLP also provided the Audit Committee with the written disclosures and the letter required by Rule 3526 of the PCAOB. PCAOB Rule 3526 requires independent registered public accounting firms annually to disclose in writing all relationships that in their professional opinion may reasonably be thought to bear on independence, to confirm their perceived independence and engage in a discussion of independence. The Audit Committee has reviewed this disclosure and has discussed with Ernst & Young their independence from Zalicus.

Based on its discussions with management and our independent registered public accounting firm, and its review of the representations and information provided by management and our independent registered public accounting firm, the Audit Committee recommended to the board of directors that the audited financial statements be included in the Zalicus Annual Report on Form 10-K for the fiscal year ended December 31, 2013, for filing with the Securities and Exchange Commission.

Respectfully submitted by the

Audit Committee,

Frank Haydu, Chairperson

Michael Kauffman

W. James O’Shea

 

(1) This Section is not “soliciting material,” is not deemed filed with the SEC and is not to be incorporated by reference in any filing of Zalicus under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

132


Table of Contents

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires Zalicus’ directors, certain of its officers and persons who own more than 10% of Zalicus’ common stock to file reports of ownership of, and transactions in, Zalicus’ common stock with the SEC. Based on Zalicus’ review of the reports it has received, Zalicus believes that all of its directors and officers complied with all reporting requirements applicable to them with respect to transactions in the fiscal year ended December 31, 2013.

Transactions with Related Persons, Promoters and Certain Control Persons of Zalicus Prior to the Merger

In April 2007, the board of directors adopted a written policy of procedures for the review, approval and ratification of transactions involving Zalicus and “related persons” (directors and executive officers or their immediate family members, or stockholders beneficially owning more than five percent of the common stock). The policy covers all transactions, arrangements or relationships (or any series of similar transactions, arrangements or relationships) in which Zalicus or any of its subsidiaries was, is or will be a participant, in which the amount involved exceeds $120,000, and in which any related person had, has or will have a direct or indirect material interest.

All related person transactions are reviewed and, as appropriate, may be approved or ratified by the Audit Committee, or if time is of the essence, the Chair of the Audit Committee. If a director is involved in the transaction, he or she may not participate in any review, approval or ratification of such transaction. Related person transactions are approved by the Audit Committee only if, based on all of the facts and circumstances, they are in, or not inconsistent with, the best interests of Zalicus and its stockholders, as the Committee determines in good faith. The Audit Committee takes into account, among other factors it deems appropriate, whether the transaction is on terms generally available to an unaffiliated third-party under the same or similar circumstances and the extent of the related person’s interest in the transaction. The Audit Committee may also impose such conditions as it deems necessary and appropriate on Zalicus or the related person in connection with the transaction. In the case of a transaction presented to the Audit Committee for ratification, the Audit Committee may ratify the transaction or determine whether rescission of the transaction is appropriate.

Since January 1, 2013, Zalicus has not engaged in any related party transactions.

Transactions with Related Persons, Promoters and Certain Control Persons of Epirus Prior to the Merger

Other than compensation arrangements, described below are transactions and series of similar transactions since January 1, 2013, to which Epirus was a party or will be a party in which:

 

    the amounts involved exceed or will exceed $120,000, and

 

    any of Epirus’ directors, executive officers, or holders of more than 5% of Epirus’ capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest.

2013 Bridge Financing

In March, July and October 2013, Epirus issued unsecured convertible promissory notes in an aggregate principal amount of approximately $12.5 million and warrants to purchase up to 2,499,996 shares of Epirus’ Series A Convertible Preferred Stock at an exercise price of $0.01 (the “2013 Bridge Financing”). The notes bore interest at 8% per annum and included both optional and mandatory conversion features. The optional conversion feature allowed each note holder, as of the maturity date, to elect to convert the balance of the note plus accrued interest into shares of Series A Convertible Preferred Stock at a conversion price of $1.00 per share. The mandatory conversion feature would have resulted in the automatic conversion of the notes into shares of a newly issued class of equity securities in the event of a qualifying financing prior to maturity. The mandatory

 

133


Table of Contents

conversion did not occur and the note holders elected to convert the aggregate amount of approximately $12.5 million in principal plus accrued interest into 13,184,383 shares of Series A Preferred Stock. The participants in the 2013 Bridge Financing included certain beneficial owners of more than 5% of Epirus’ capital stock and entities affiliated with certain of Epirus’ directors, as set forth in the table below:

 

Name

  Principal Amount     Shares of Series A Preferred
Stock Received on
Conversion of Notes
    Shares of Series A
Preferred Stock
underlying Warrants
 

5AM Ventures III, L.P. and its affiliates(1)

  $ 4,166,667.67        4,402,101        833,332   

Montreux Equity Partners IV and its affiliates(2)

  $ 4,166,667.67        4,391,141        833,332   

TPG Biotechnology Partners III, L.P.(3)

  $ 4,166,667.67        4,391,141        833,332   

 

(1) These promissory notes and warrants were purchased by 5AM Ventures III, L.P. and 5AM Co-Investors III, L.P. Scott Rocklage, one of Epirus’ directors, is a managing member of 5AM Partners III, LLC, the general partner of AM Ventures III, L.P. and 5AM Co-Investors III, L.P.
(2) These promissory notes and warrants were purchased by Montreux Equity Partners IV, L.P. and Montreux Equity Partners V, L.P. Daniel K. Turner, one of Epirus’ directors, is a manager of Montreux Equity Management IV, L.L.C., the sole general partner of Montreux Equity Partners IV, L.P., and Montreux Equity Partners V, L.L.C., the sole general partner of Montreux Equity Partners V, L.P.
(3) Geoffrey Duyk, one of Epirus’ directors, is a TPG Partner.

2014 Bridge Financing

In March 2014, Epirus issued unsecured convertible promissory notes in an aggregate principal amount of approximately $5 million and warrants to purchase either shares of Epirus’ Series A Convertible Preferred Stock or a newly issued class of equity securities in the event of a qualifying financing at an exercise price of $0.01, or the 2013 Bridge Financing.

The notes bore interest at 8% per annum and included both optional and mandatory conversion features. The optional conversion feature allowed each note holder, as of the maturity date, to elect to convert the balance of the note plus accrued interest into shares of Epirus’ Series A Convertible Preferred Stock at a conversion price of $1.00 per share. The mandatory conversion feature resulted in the automatic conversion of the notes into shares of a newly issued class of equity securities in the event of a qualifying financing prior to maturity. The mandatory conversion occurred on Epirus’ issuance of Series B Preferred Convertible Stock on April 15, 2014 (the “Series B Financing”), and the notes were converted into 3,947,363 shares of Series B Convertible Preferred Stock. Epirus entered into side letters with two of the investors allowing them to use the interest accrued on their notes towards payment of their warrant exercise price, which reduced the amount of Series B Convertible Preferred Stock that would have otherwise been issued to those investors in this conversion.

The warrants were exercisable for 999,999 shares of Series A Convertible Preferred Stock until a qualified financing occurred, at which time they became exercisable for the number of newly issued stock that is equal to the quotient of 999,999 divided by the purchase price of the newly issued stock. None of the warrants were exercised prior to the Series B Financing, and thus they all became exercisable for Series B Convertible Preferred Stock on April 15, 2014.

 

134


Table of Contents

The participants in the 2014 Bridge Financing included certain beneficial owners of more than 5% of Epirus’ capital stock and entities affiliated with certain of Epirus’ directors, as set forth in the table below:

 

Name

   Principal
Amount
     Shares of Series B Preferred
Stock Received on
Conversion of Notes
     Shares of Series B
Preferred Stock
underlying Warrants
 

5AM Ventures III, L.P. and its affiliates(1)

   $ 1,666,666.66         1,322,691         262,467   

Montreux Equity Partners IV, L.P.(2)

   $ 1,666,666.66         1,312,336         262,467   

TPG Biotechnology Partners III, L.P.(3)

   $ 1,666,666.66         1,312,336         262,467   

 

(1) These promissory notes and warrants were purchased by 5AM Ventures III, L.P. and 5AM Co-Investors III, L.P. Scott Rocklage, one of Epirus’ directors, is a managing member of 5AM Partners III, LLC, the general partner of 5AM Ventures III, L.P. and 5AM Co-Investors III, L.P.
(2) These promissory notes and warrants were purchased by Montreux Equity Partners IV, L.P. Daniel K. Turner, one of Epirus’ directors, is a manager of Montreux Equity Management IV, L.L.C., the sole general partner of Montreux Equity Partners IV, L.P.
(3) Geoffrey Duyk, one of Epirus’ directors, is a TPG Partner.

Livzon Collaboration Agreement

Epirus has entered into a binding term sheet to negotiate and enter into a collaboration agreement with Livzon MABPharm, Inc., as described further below under the caption “Epirus’ Business” beginning on page 167. Livzon MABPharm, Inc. is a holder of greater than 5% of Epirus’ capital stock and Daotian Fu, one of Epirus’ directors, is General Manager of Livzon MABPharm, Inc.

Transactions with Related Persons, Promoters and Certain Control Persons Continuing as a Director or Officer After the Merger

Other than the transactions described in “—Transactions with Related Persons, Promoters and Certain Control Persons of Zalicus Prior to the Merger” and “—Transactions with Related Persons, Promoters and Certain Control Persons of Epirus Prior to the Merger,” since January 1, 2013, Zalicus has not engaged in any transactions with persons who will be directors and/or officers after the merger or holders of more than 5% of the combined company’s voting securities after the merger that are affiliated with such officers or directors.

Indemnification Agreements

Zalicus will enter into indemnification agreements with each of its new non-employee directors to give such directors additional contractual assurances regarding the scope of the indemnification set forth in Zalicus’ certificate of incorporation and bylaws and to provide additional procedural protections. Zalicus’ indemnification agreements with its current directors who will remain on the Zalicus board of directors after the merger will remain in force.

 

135


Table of Contents

ZALICUS’ BUSINESS

Overview

We are a biopharmaceutical company that discovers and develops novel treatments for patients suffering from pain. We have a portfolio of proprietary product candidates targeting pain and have entered into multiple revenue-generating collaborations with large pharmaceutical companies relating to other products, product candidates and drug discovery technologies.

Our most advanced product candidate is Z944, a novel, oral, state-dependent, selective T-type calcium channel modulator we are seeking to develop for the treatment of pain indications. T-type calcium channels have been recognized as key targets for therapeutic intervention in a broad range of cell functions and have been implicated in pain signaling. During 2013, we completed a Phase 1b clinical trial utilizing Laser-Evoked-Potentials, or LEP, to provide both objective and subjective assessments of the activity of Z944 in induced pain states. On November 1, 2013, we announced positive results from this Phase 1b clinical trial. On May 22, 2014 we reported successful results from the phase 1 clinical study to evaluate multiple modified-release formulations of Z944. The open label, randomized cross-over study compared three modified-release tablet formulations of Z944 with the immediate-release capsule formulation which was shown to be effective in a previous human clinical model of pain. The selected tablet formulation demonstrates a superior exposure and tolerability profile and warrants further clinical development.

We have also been performing discovery research and preclinical development activities on our proprietary selective ion channel modulators targeting the Nav1.7 sodium channel for the treatment of pain. This discovery research and preclinical development has been conducted as part of a research collaboration with Hydra Biosciences, Inc., or Hydra, a recognized leader in novel ion channel discovery and development. This collaboration expired in February 2014 in accordance with its terms.

Until November 2013, we had also been advancing the development of Z160, a novel, oral N-type calcium channel modulator we were seeking to develop for the treatment of chronic pain. In December 2012 and August 2012, we initiated Phase 2 clinical trials of Z160 for the treatment of neuropathic pain, including post-herpetic neuralgia, or PHN, a painful neuropathic condition resulting from an outbreak of the herpes zoster virus, otherwise known as shingles, and lumbosacral radiculopathy, or LSR, a common neuropathic back pain condition resulting from the compression or irritation of the nerves exiting the lumbar region of the spine, respectively. Patient enrollment completed for both studies in September 2013. Results from both Phase 2 trials of Z160 were released on November 11, 2013 and Z160 did not meet the primary endpoint in either of these Phase 2 trials. Based on the results, we have terminated further development of Z160.

Until September 2012, we had also been advancing the development of Synavive, a product candidate to treat immuno-inflammatory disorders. In June 2011, we initiated a Phase 2b clinical trial evaluating Synavive in patients with rheumatoid arthritis, which we refer to as the SYNERGY trial. Results from the SYNERGY trial were announced in September 2012, and while Synavive achieved a statistically significant improvement in signs and symptoms of rheumatoid arthritis, as measured by DAS28-CRP, compared to placebo, the primary end point of the trial, Synavive did not demonstrate a meaningful clinical benefit measured by DAS28-CRP, compared to 2.7 mg of prednisolone or 5 mg of prednisone, key secondary endpoints of the SYNERGY trial. Based on the data from the SYNERGY trial, we terminated further development of Synavive.

On December 21, 2009, we completed a merger, which we refer to as the Neuromed Merger, with Neuromed Pharmaceuticals Inc., or Neuromed, pursuant to which Neuromed Pharmaceuticals Ltd. became a wholly-owned subsidiary of Zalicus. On September 8, 2010, we changed our name from CombinatoRx, Incorporated to Zalicus Inc. We also changed the name of our subsidiaries, including Neuromed Pharmaceuticals Ltd., which is now named Zalicus Pharmaceuticals Ltd, and which we refer to herein as Zalicus Canada.

On June 2, 2014, we consummated the transactions pursuant to the Asset Purchase Agreement (the “Horizon Purchase Agreement”) with Horizon Discovery Limited, an English private limited company, and Horizon

 

136


Table of Contents

Discovery Inc., a privately held Delaware corporation (together, the “Horizon Discovery Group”), pursuant to which the Horizon Discovery Group purchased our combination High Throughput Screening platform (the “cHTS Business”) and certain assets and liabilities related to the cHTS Business (such transaction, the “Horizon Sale”). Under the terms of the Horizon Purchase Agreement, at the closing of the transaction, we received $8 million from the Horizon Discovery Group, plus $0.5 million as a closing adjustment for net working capital, subject to further specified adjustments post-closing for net working capital.

Our Proprietary Product Candidates

All of our proprietary product candidates are focused in the area of pain, which is an area of continuing unmet medical need with potentially large commercial markets.

Our Ion Channel Product Candidates for Pain

We are focused on discovering and developing new compounds that selectively target neuronal calcium and sodium channels for the treatment of pain. The current treatment paradigms for pain rely on four major classes of medicines: opiates, non-steroidal anti-inflammatory drugs, or NSAIDs, gabapentanoids, a class of anti-convulsants with analgesic properties and antidepressants, all of which have significant safety, tolerability and dependence issues. We are using our experience with ion channel research and development in our efforts to discover and develop novel proprietary compounds to potentially treat pain by selectively modulating T-type calcium channels or Nav1.7 sodium channels. We believe our ion channel modulator programs have the potential to produce a new class of analgesics for the treatment of acute, chronic or visceral pain, with the potential for safety and efficacy advantages over existing analgesics.

Background of Clinical Pain. Pain results from sensory nerve stimulation often associated with actual or potential tissue damage. Specific nerve fibers carry the pain signal across the nervous system to the brain, where it is recognized as pain. Pain is generally characterized on two dimensions, intensity and duration. Pain intensity is typically expressed as mild, moderate or severe. Mild pain results from relatively common conditions such as headaches, sprains or strains. Moderate pain results from conditions such as surgery, severe strains or sprains. Severe pain results from serious underlying illnesses such as osteoarthritis, lower back pain, post-herpetic neuralgia, diabetic neuropathy, inflammatory bowel syndrome, cancer or AIDS. Pain duration is expressed as acute or chronic. Acute pain often subsides in a short period of time and is typically associated with tissue injury such as surgery, a cut, a joint dislocation, or pressure on a nerve. Chronic pain persists for long periods of time and may involve underlying changes in the nervous system producing unusual sensitivity to touch, shooting or visceral pains, aching and other often disabling pain symptoms.

Background on Pain Treatment Market. NSAIDs, including COX-2 inhibitors, used to treat mild to moderate pain, are widely prescribed within the pain pharmaceutical market. NSAIDs are drugs with analgesic, fever-reducing and anti-inflammatory effects. As a class, NSAIDs are usually prescribed as first-line treatment; however, their relatively low potency may result in insufficient pain control for the patient. The long-term use of NSAIDs may result in side effects such as gastrointestinal bleeding, liver and kidney damage and cardiovascular-related complications.

Opioids have long been prescribed to treat moderate to severe pain and are regarded as the most potent class of analgesics. When used for extended periods, however, opioids can lead to side-effects, the development of tolerance, dependence and addiction. Tolerance means that increasing doses of opioids are required to maintain effective pain relief. Dependence means reliance on the drug and the existence of significant withdrawal symptoms upon cessation of drug administration. Addiction refers to drug-seeking behaviors characterized by a continued craving for the opioid and the need to use it for effects other than pain relief. As a consequence of these and